(Bloomberg) — One of Wall Street’s biggest stock market pessimists has restored his bearish forecast for the S&P 500 index.
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Greg Buell, head of U.S. equity and derivatives strategy at BNP Paribas SA, predicted the benchmark would end the year at 3,400, an 11% decline from where it ended in 2022 and a 26% slide from July’s peak. It was the lowest target among strategists surveyed by Bloomberg.
But this week, after the market defied the gloomy forecast, he clarified. Bowle raised his target to 4,150, expecting fewer declines than Morgan Stanley’s Mike Wilson (3,900) or Piper Sandler & Co.’s Michael Kantrowitz (3,600-3,800) in the final four months of the year. The S&P 500 closed at 4,451 on Thursday.
The revised forecast reflects hopes that the U.S. economy will avoid a recession this year, which was once widely expected following interest rate hikes from the Federal Reserve. Instead, Bootle said he expects stocks to decline as growth slows and analysts lower forecasts for corporate earnings.
“Our outlook this year has always been based on the idea that we’re going to see a recession in the U.S.,” Bootle said in an interview. “I think we, along with a lot of people on the street, were surprised by the intensity of information in the US.”
Boutle is one of those forecasters who are blinded by the incredible strength of the economy. As the Fed moved closer to ending rate hikes, it fueled a sharp rally in stock prices as investors priced in speculation that the country would avoid recession. Even with the delay since early August, the S&P 500 is still on track to gain nearly 16% in 2023.
At its all-time high in July this year, the S&P 500 surpassed its average Wall Street year-end target of September 2020, according to data compiled by Bloomberg. That unexpected growth — and a more optimistic outlook — prompted a wave of strategists to revise their S&P forecasts upward.
BNP Paribas has maintained its target of 3,400 – although the index has tested 4,600 – for “a longer than ideal period,” Bowle said.
“It’s not because we’re not aware of the price action that’s going on,” he said. We want to make sure that what we are doing is not a market signal, but rather a prediction of the outlook on something that is logically consistent with the forecast.
The company’s latest macroeconomic outlook shows that 2024 revenue estimates will be pulled back as growth slows. But even if the economy picks up again and earnings expectations rise, Bowle says the crash is already worth it.
For now, he said, the BNP’s fundamental issue is “certainly within limits”.
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