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S&P 500 expected to rise 6% by year’s end after a choppy first half.

2022/11/30 (Nov 30th, 2022 12:05 am)
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November 29th, New York After a difficult start to 2023, U.S. equities will close the year up around 6% as rising interest rates have an impact on the country’s economy, according to a Reuters poll of analysts on Tuesday.

According to the strategists, two of the biggest market risks are that the U.S. Federal Reserve will cause the economy to enter a recession while raising interest rates to combat extreme inflation and that corporate U.S. earnings growth will stagnate.

According to the median prediction of 41 strategists surveyed by Reuters over the past two weeks, the benchmark S&P 500 index (.SPX) will close next year at 4,200.

At the company’s outlook conference on Monday, BofA Securities’ Savita Subramanian, head of U.S. equities and quantitative strategy, stated, “We see the market having a harder start to the year and concluding the year in recovery mode.

The company predicts the S&P 500 will reach 4,000 by the end of the year, a minor recession in the first half of 2023, and a loosening of Fed policy by then.

Recently, Wall Street stocks have risen sharply, in part due to expectations that the Fed will slow the pace of rate increases.

Among other things, the direction of inflation in the upcoming months will determine rate policy. The annual growth in U.S. consumer prices fell below 8% for the first time in eight months in October after rising less than anticipated.

But while entering its second bear market since the worldwide sell-off brought on by the coronavirus epidemic in 2020, the S&P 500 is still down over 17% for the year as a whole.

Professional strategists have often had terrible success forecasting stock market returns, particularly at the beginning of a new year when there is so much uncertainty, but their predictions are still useful for understanding the mood on Wall Street.

Most strategists surveyed anticipated that the profits situation would worsen over the ensuing six months rather than improve, and several predicted that the S&P 500 would not experience any earnings increase in 2023.

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According to Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis, Minnesota, “Company guidance for 2023 is currently largely elusive given economic uncertainty, ongoing inflationary pressures, and lack of visibility into consumer and business spending in 2023.”

Based on IBES statistics from Refinitiv, analysts predict that fourth-quarter U.S. earnings will slip for the first time in two years, and predictions have been declining for 2023 as well.

Based on the statistics, they predict full-year profit growth of 4.9% for 2023, compared to expected increase of 5.8% for the entire 2022.

According to Refinitiv data, the S&P 500’s forward 12-month price-to-earnings ratio is currently around 18, down from 22 at the end of December 2021 and a long-term average of roughly 16.

“Earnings remain uncertain, and it’s unclear whether they will stabilize or not. However, rates may start to decline in the middle of the year, according to King Lip, chief strategist at BakerAvenue Wealth Management in San Francisco. The S&P 500 will end the year at 4,400, according to him.

Energy (.SPNY), the best-performing sector in the S&P 500 and up 61% for the year thus far, has more room to grow, according to BofA’s Subramanian. She underweights a number of industries, including technology (.SPLRCT).

The poll predicts that the Dow Jones industrial average (.DJI), up 7.8% from Monday’s close, will end the year at 36,500.

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