It's always good to keep an eye on the outlook for the S&P 500. While it might seem like the stock market is in a great spot, there are still some key indicators to be aware of. One of these is the ratio of money in the S&P 500 to the number of 401(k) accounts. While this might sound like a small issue, it's an important one to understand.
RBC Capital Markets
RBC Capital Markets' outlook for the S&P 500 is moderate and balanced. While the company's forecast remains optimistic, it is balanced by cautious views on fiscal policy and rising inflation. The firm lowered its year-end 2022 price target for the index from $212 to $208 per share. It also noted that its forecasts for S&P 500 earnings in 2023 are below consensus estimates. However, the firm's analysts expect a “slight gain” in stock prices, averaging $208 per share, compared to the $239 forecast that most Wall Street analysts have ascribed to the index for the coming year.
While the firm's economists aren't discounting the possibility of a recession, they aren't overly optimistic. They note that the S&P 500 tends to bottom three to six months before the end of an earnings revision cycle. They're predicting that the stock market will be more volatile during this period. The Fed's recent aggressive tightening actions have stoked the market's recession fears. In addition, record high oil prices have hurt the global economy. The S&P 500 climbed 26-50 percent in the 36-month period following the peak in earnings, but the underlying economic expansions remained strong.
The Federal Reserve's policy makers have focused on taming stubbornly high inflation, which has increased the cost of living and eroded consumer confidence. The agency plans to raise interest rates at least a quarter of a point in December, with another 50 basis points in the months ahead. Meanwhile, the RBC Capital Markets team notes that the market is approaching an important level. The 3,500 level is the point where the median recession is projected to be priced in. If the market were to hit that mark, it could draw investors to buy a dip.
While the RBC analysts' view is that the market has room to run, it is also clear that the Federal Reserve's actions will put a cap on the growth of the economy. This is particularly true in the energy and manufacturing sectors, where the supply of key commodities is expected to remain relatively tight. These factors, along with solid corporate earnings momentum, will help boost the stock market.
The year-end outlook for the S&P 500 has changed considerably from Goldman Sachs' previous estimates. The bank dropped its year-end target for the index from 4700 to 4300 last month. In addition to a reduction in the year-end target, Goldman analysts have also cut back on the valuation projection. The team's best case scenario involves no gain, while its worst case scenarios include a sharp downturn in the economy and the potential for more trouble for stocks.
Aside from its S&P 500 outlook, Goldman analysts have also adjusted its view on interest rates. They predict that the 10-year Treasury yield will rise to 1.6% by the end of 2021. This means that the S&P 500 will have to go through an “unusually murky” year. In fact, the expected path of interest rates is much higher than their previous estimate. The Goldman Sachs team says that the worst case scenario for the S&P 500 is a sharp downturn in the economy. In that case, the index could drop as low as 3,150 in the early part of next year. But the company's strategists say it's more likely that the index will bottom out around 3600. This is not a bad place to be if the recession does not happen in the near future.
The base-case scenario, however, foresees the S&P 500 falling as low as 3600 before it rebounds and finishes the year at just above the 3000 level. The Goldman Sachs team, led by David J. Kostin, said the stock market's real growth will be minimal. Goldman's base-case forecast is based on the assumption that the Fed will continue to raise interest rates by 25 basis points over the next few years. It is unclear how the increase in interest rates will affect the economy, though the firm's analysts note that recent monetary tightening by the central bank has already taken a toll on the economy.
The Goldman Sachs team, led by Chief US Equity Strategist David J. Kostin, says that the S&P 500's “best case” is that it will be down only 2% from its current level. And, it's a bit more difficult to predict the “worst case.” The company says that it expects the Federal Reserve to start raising rates in May, which will end its monetary tightening campaign.
The S&P 500 has been in the doghouse for the past six weeks. It has fallen by more than 13% since the start of the year, which may be good for short term investors but is a nightmare for longer term portfolios. As a result, the Asset Allocation Committee has downgraded its whole equities complex to an underweight view. The aforementioned committee is comprised of some of the most well rounded and savvy financial gurus around.
The aforementioned committee met to discuss its upcoming 12-month forecast. In short, the S&P 500 will continue to be a drag on the rest of the stock market and will remain an underpriced investment. Its best days are long behind it. The best way to combat this is to stay invested in a strategy that aligns with your long term objectives. The asset allocation committee suggests that you consider some of the following: The most important point to take away from this is that the Asset Allocation Committee is still skeptical of the equity market's long-term prospects. As mentioned, the group favors cash, uncorrelated strategies, and commodities. In fact, they are willing to put their money where their mouth is and hold some of their assets in high yield fixed income. They are also on the lookout for relative value opportunities in Europe. Despite the bleak state of the European economy, there are some bright spots aplenty. Among them are China, which looks like a relatively cheap investment. Despite its challenges, China is likely to be a major beneficiary of a global recovery, with a plethora of potential growth stories.
As you can see, the Asset Allocation Committee is more concerned with the future than the present. Nevertheless, they are still weighing the benefits of the dreaded QE program. The S&P 500 is a large cap, technology heavy index that's been underperforming for quite some time. The best approach is to use a disciplined approach to reposition your portfolio for the long-term. By focusing on the right factors, you should have a much better chance of outperforming your competitors.
The Vanguard outlook for the S&P 500 is slightly below Wall Street consensus. But the giant mutual fund company has a strong record when it comes to making predictions. Its 10-year forecasts were released in early 2013. The Vanguard outlook for the S&P says the economy is preparing for a downturn. It expects inflation to fall to 3% by 2023. Inflation has been rising at a fast pace over the past year, but prices have started to cool. It also forecasts higher interest rates for bonds and stocks in the coming year.
The Vanguard panel predicts a modest return on stocks over the next decade. But they say the economy is better prepared for a downturn than in the recent past. Despite the recession, jobless rates will not rise too sharply. The outlook says that the Federal Reserve is making good progress in taming inflation. The Fed is expected to raise its federal funds rate target to at least 4% in the next few months. It has raised it four times this year.
Earlier this month, the Consumer Price Index showed a year-over-year increase of just 7.1%. That could mean an end-of-year rally in the S&P 500. But the jobless rate is still below its long-term average. The jobless rate for October was 3.7%, just slightly above the five-decade low.
It is clear that the Federal Reserve is taking action to control inflation, but it is not yet clear whether the central bank will reach its target of 2%. The Consumer Price Index showed a 0.1% rise in October, and November's numbers were just 0.2%. But as the Federal Reserve continues to tighten monetary policy, there are more and more signs of a recession. The unemployment rate has been below the cyclical average for a few years, and there are signs that immigration will decline. The tech sector is one area of concern, as it is experiencing layoffs.
Overall, the Vanguard outlook for the S&P 500 calls for slightly lower stock returns this year. The firm previously predicted 3.5% growth. But the firm expects the Federal Funds rate to move into the 3.25% to 3.75% range by the end of this year.