(Bloomberg) — Stock market strategists who have largely been wrong about this year’s rally are finally starting to face up to their mistakes, raising year-end targets for the S&P 500 index.
Most read from Bloomberg
Take Societe Generale Manish Khabra, who last week raised his year-end target on the index to 4,750 from 4,300 — 25% from his initial call of 3,800 going into 2023. Bowl has the lowest target among sell-side forecasters at 3,225 and 3,400. They raised their 2023 outlook only to continue the 16 percent rally.
And then there’s Morgan Stanley’s Mike Wilson, a staunch bear, who admitted in July that he’s been pessimistic for too long. Although it still sees US stocks falling more than 10% before the end of the year.
“Groupthink and psychology is a major driver of strategists’ behavior,” says Adam Sarhan, founder of 50 Park Investments. “Many strategists have been wrong for a long time this year, so many have been forced to adjust their targets when trying to catch the stock market.”
While strategists are wide-ranging in their predictions for 2023, they aren’t ready to turn bullish. Kabba, for example, expects the S&P 500 to drop to 3,800 by the middle of next year, led by a consumer spending crisis. It closed at 4,450 on Friday.
He is not alone. Strategists Markets are widely predicting a recession in 2024, despite growing signs that the U.S. economy will avoid a recession — inflation has generally slowed, retail sales are strong and the Federal Reserve is expected to hold interest rates this week.
For investors with money online, the gloom on Wall Street poses a dilemma. It’s a reminder that the Fed’s efforts to tame inflation still threaten the economy. At the same time, stocks They beat similar risks in 2023 and now, with the outlook for corporate America’s profits improving and the Fed itself showing no sign of a recession, some market watchers conclude the bears will be wrong again.
For Sirhan, an equity bull favored by technology and growth stocks, it all drives home how those who track the markets — like strategists — and those who manage client money differ.
“As a money manager, the pressure is very different,” he said. “You have to not only be right, you have to beat the market – otherwise customers will turn on you.”
Wall Street strategists have been forced to raise their forecasts as a number of stocks extend their range this year. Bank of America’s Savita Subramanian, Goldman Sachs Group Inc.’s David Kostin and Citigroup Inc.’s Scott Kronert have raised their 2023 outlook in recent months to track the rally.
“You could argue that not all people who revise their estimates and adjust their market calls are wrong,” said Oliver Purche, senior vice president and consultant at Wealthspire Advisors. “Listening to someone you disagree with is more valuable than seeking validation from someone else who sees the market the same way you do.
As the Fed nears the end of its tightening cycle, Porsche is optimistic about the stock market and the economy as the outlook for earnings brightens and spending remains strong.
But that doesn’t mean there aren’t risks.
Fed officials have indicated they are prepared to raise borrowing costs again if the economy and inflation do not slow further. There’s also a tried-and-true signal emanating from the bond market, which has long echoed recessionary alarms.
The main question plaguing much of Wall Street at this point may be how long the Fed will keep rates at this level if it ends up hiking. Economists polled by Bloomberg expect officials to keep rates in the 5.25% to 5.5% range at their September 19-20 meeting, and the first cut in May – two months after economists’ view of July.
Read more: Fed Seen Signaling One More Hike and Pushing 2024 Rate Cuts
Historically, nailing down the duration of a Fed hike has delivered double-digit returns for stock investors, but the path has been bleak when the central bank jumps ahead of a hike.
There are signs that investors have money to make in stocks. While investor exposure in July appeared to have stretched after a big first-half rally in equities, it is now much closer to neutral, according to data compiled by Deutsche Bank AG.
Some of the money seems to be coming from the margins. Equity funds saw their biggest weekly gains in 18 months on growing confidence that the economy is headed for a soft landing, Bank of America said.
“No one thought the rally would go this fast,” said Stephanie Lang, chief investment officer at Homeric Berg, which has underweight stocks all year. “What it says is that if most strategists turn around, then there will be more economic weakness that some are already worried about.”
– With help from Lu Wang.
Most read from Bloomberg Businessweek.
©2023 Bloomberg LP