Wall Street's Bears Say Bullish Things Too!

Stocks closed lower last week with the S&P 500 falling 1.4%. The index is now up 13.3% year to date, up 21.6% from its October 12 closing low of 3,577.03, and down 9.3% from its January 3, 2022 record closing high of 4,796.56.

In recent weeks, strategists across Wall Street have revised up their year-end targets for the S&P 500. These updated calls incorporate the improving outlook for earnings, expectations for the Fed to soon dial back hawkish monetary policy, and the fact that stock prices have mostly gone up since the beginning of the year.

Some prominent bears are still calling for a big pullback in prices before the year’s over. They include Morgan Stanley’s Michael Wilson, who has been reiterating his call for the S&P 500 to fall to 3,900 by the end of the year, and Capital Economics’ Thomas Mathews, who recently revised his target up to just 4,000 from an initial target of 3,800.

Both of these strategists, however, have bullish things to say about the longer term.

Wilson, who expects S&P 500 earnings per share (EPS) to fall to $185 in 2023, predicts a “sharp rebound” in growth with EPS surging 23% to a record $228 in 2024 and jumping another 10% to $250 in 2025.

Wilson hasn’t yet issued S&P price targets for the ends of those years, but Capital Economics Mathews’ has. And they’re bullish.

Mathews predicts the S&P will explode to 5,500 by the end of 2024 and 6,500 by the end of 2025. This would imply a 37.5% surge assuming the index falls to 4,000 this year, followed by an 18.1% gain in 2025.

From Mathews’ June 20 research note:

…By next year, we think worries about growth will be fading and, what’s more, the Fed will probably be in easing mode. That could create a backdrop for enthusiasm about equities – and AI specifically – to recover.

The median rebound in the S&P 500 from a recession-induced slump since 1960 is ~38%. The fairly mild recession – and associated fall in the S&P 500– we forecast would probably argue for a smaller recovery than that median. But if we’re right that it will come alongside a rekindling of AI enthusiasm as well, the index could perform quite well.

Now, there’s no guarantee we’ll see a recession in the coming months. In fact, economists have been dialing back their recession warnings in recent weeks.

That said, it would certainly not be unprecedented to see massive returns in the stock market following a recession.

Zooming Out

Strategists’ short-term returns expectations for the S&P will often range from very positive to very negative.

But longer term, they tend to skew positively. (After all, the stock market usually goes up!)

It’s something for investors to remember as they read news articles and other publications that cite the research of Wall Street strategists. Sometimes, these experts’ short-term predictions look very different from their long-term views.
A version of this post was originally published on Tker.co