Wall Street’s top stock market strategists are telling clients where they see the stock market heading in the year ahead.

Some high-level themes I’m seeing in their reports: Stocks are likely to rise, but gains will be limited because valuations are high. Earnings growth should be strong, fueled by consumer spending and capital expenditures. Risks include supply chains issues persisting, labor shortages continuing, and monetary policy tightening more quickly than expected. Most of these outlooks were published before the Omicron variant emerged, but strategists generally agree that the economy is better prepared for new waves of Covid infections.

Below is a roundup of 14 of these 2022 forecasts for the S&P 5001 including highlights from the strategists’ commentary. The targets range from 4,400 to 5,300. The S&P closed on Friday at 4,538, which implies returns between -3% and +17%:

• Barclays - 4,800 (12/2/2021): “Household and corporate cash hoards should support modest earnings growth but persistent supply chain woes, reversal of goods consumption to trend and China hard-landing are key tail risks.“ (via Jonathan Ferro)

• DWS, David Bianco - 5,000 (12/1/2021): “2022 returns driven by earnings growth. Higher volatility with potentially significant intra-year sector rotations depending on level of real yields.”

• JPMorgan, Dubravko Lakos-Bujas - 5,050 (11/30/2021): “While there have been sporadic setbacks with COVID-19 variants (e.g. delta, omicron), this needs to be seen in the context of higher natural and vaccine-acquired immunity, significantly lower mortality, and new antiviral treatments… With this in mind, the key risk to our outlook is a hawkish shift in [central bank] policy, especially if post-pandemic dislocations persist (e.g. further delay in China reopening, supply-chain issues, labor shortages continue).” (via MarketWatch)

• Yardeni Research, Ed Yardeni - 5,200* (11/28/2021): “Assuming, as I do, that Omicron, the new variant of Covid, will turn out to be no worse than the Delta variant, I still expect that the S&P 500 will continue to rise to new record highs… The Fed may decide to taper faster in response to higher-than-expected inflation. But, it would still be adding liquidity, though at a slower pace, to the economy’s punch bowl—which already has plenty of liquidity from previous rounds of the Fed’s largess.“ (via LinkedIn)

• Bank of America, Savita Subramanian - 4,600 (11/23/2021): “Drivers for our outlook: a higher discount rate, US GDP primacy vs. China, rising capex but slowing consumption, the end of the ‘equity shrinkage’ bull case.”2

• Jefferies, Sean Darby - 5,000 (11/23/2021): “Growth – Real and Nominal – is not likely to be a problem in 2022 as the US consumer, corporate, government and possibly the banks unleash their spending. But base effects work against earnings and high valuations meaning that market multiples matter.“

• BNP Paribas, Greg Boutle - 5,100 (11/22/2021): “We expect to see some compression of price/earnings ratio multiples as rates rise. However, strong earnings growth could still translate into a ~10% total return, in our view.“

• BMO, Brian Belski - 5,300 (11/18/2021): “An accommodative Fed, excessively low interest rates, potential peaking inflation and supply chain fears, and positive earnings growth REMAINS a very good recipe for equities – PERIOD.“

• Goldman Sachs, David Kostin - 5,100 (11/16/2021): “Decelerating economic growth, a tightening Fed, and rising real yields suggest investors should expect modestly below-average returns next year. The S&P 500 has historically generated an average 12-month return of 8% in environments of positive but slowing economic activity and rising real interest rates...“

• Wells Fargo Investment Institute - 5,100-5,300 (11/16/2021): “We expect supportive monetary policy along with public and private spending to push equity markets higher through the year.“ (via Wells Fargo)

• Morgan Stanley, Michael Wilson - 4,400 (11/15/2021): “With financial conditions tightening and earnings growth slowing, the 12-month risk/reward for the broad indices looks unattractive at current prices. However, strong nominal GDP growth should continue to provide plenty of good investment opportunities at the stock level for active managers.“

• RBC, Lori Calvasina - 5,050 (11/11/2021): “As for why we feel constructive (beyond the strong economy), cash deployment trends are positive, frothy earnings revisions are no longer an overhang on the market, individual investor sentiment turned so bearish recently that it briefly gave a contrarian buy signal for the stock market in October, and fiscal policy tilts supportive with corporate tax hikes less of a threat. The onset of tapering and proximity of Fed hikes have kept investors uneasy, but stocks normally post gains post lift off as long as the economy is strong enough to handle it.“

• UBS, Keith Parker - 4,850 (09/07/2021): “We forecast S&P 500 EPS to rise to $60 in Q2 '22, inclusive of a tax hit, which would support 5,000+ for the S&P on a 21x trailing P/E. Slower forecast economic growth in H2 '22 though and a flattening out of quarterly earnings at ~$60 accordingly should mean that gains are front loaded next year.“

• Credit Suisse, Jonathan Golub - 5,000 (08/09/2021): “We see upside to estimates as empty shelves are restocked and pricing power is maintained. Consumer spending should improve as the unemployment rate drops further, accompanied by higher wages.“

⚠️ It’s incredibly difficult to predict with any accuracy where the stock market will be in a year.3 In addition to the countless number of variables to consider, there are also the totally unpredictable developments that occur along the way.

Strategists will often revise their targets as new information comes in. In fact, some of the numbers you see above represent revisions from prior forecasts.

For most of y’all, it’s probably ill-advised to overhaul your entire investment strategy based on a one-year stock market forecast.

Nevertheless, it can be fun to follow these targets. It helps you get a sense of the various Wall Street firm’s level of bullishness or bearishness.

*CORRECTION: An earlier version of this post said Yardeni’s 2022 target was 4,800. That was his 2021 target.

Share

With all that in mind, here’s some relevant reading on the stock market from TKer:

• The only thing that can send the stock market lower than bad news is uncertainty. (Link)

• New Covid variants should be expected. But, keep in mind that the economy is much more prepared today than it was two years ago. (Link)

• The Fed has begun to taper QE, and it’s expected to hike interest rates in the months to come. History says this doesn’t spell doom for stocks. (Link)

• Long-term investors need not worry about bearish one-year stock market forecasts. (Link) Also, most of us are terrible stock market forecasters. (Link)

• Sometimes, the S&P 500 will be up even though most of its constituents are down. (Link)

• 10 truths about the stock market (Link)

Rearview 🪞

📈📉 Stock market roller coaster: The S&P 500 fell 1.2% last week, but it’s still up 20.8% for the year. Since we got news of the Omicron variant, the stock market went down, then up, then down, then up, then down, then up, and then down. For more on why markets go haywire sometimes, read this.

🚚 Supply chains are improving4: According to the Institute of Supply Management, manufacturing activity accelerated in November. The details of the ISM’s new report were encouraging: Delivery times were down, which suggests supply chains are improving; employment was up, which suggests labor shortage may be improving; and prices continued climbing but at a slowing rate, which suggests inflation may be cooling.

🏛 The Fed is watching Omicron…: From Fed Chair Jerome Powell’s testimony to the Senate Banking Committee on Monday: “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.“

…🦅 But the Fed isn’t getting soft: On Tuesday, Powell told the same committee that the strength of the economy and the pace of inflation could warrant the Fed to dial back it’s accommodative monetary policy faster than expected: “We now look at an economy that is very strong and inflationary pressures that are very high and that means it's appropriate for us to discuss at our next meeting — which is in a couple weeks — whether it would be appropriate to wrap up our purchases a few months early.“

🛍 Cyber Monday cooled5: Consumers spent $10.7 billion online on Monday, according to Adobe Analytics. That’s down 1.2% from a year ago. That said, it’s not smart to read too much into this. One day’s worth of shopping never tells you much about anything but one day’s worth of shopping.

🏘 Home prices are up6: U.S. home prices climbed by 1.2% month-over-month in September, according to S&P CoreLogic Case-Shiller. This represented a 19.5% gain from a year ago. However, this was a deceleration from the 19.8% year-over-year increase reported for August.

😤 Consumer confidence cools…7: The Conference Board’s Consumer Confidence Index slipped to 109.5 in November from 111.6 in October. “Concerns about rising prices—and, to a lesser degree, the Delta variant—were the primary drivers of the slight decline in confidence,“ The Conference Board’s Lynn Franco said.

…However🎉: That same report revealed optimism toward the labor market was high.

Up the road 🛣

All eyes will be on the release of the November consumer price index (CPI) report, which will be released on Friday at 8:30 am ET. The October CPI saw the biggest year-over-year jump in prices since November 1990. The stakes are high as high inflation readings have been putting increasing amounts of pressure on the Fed to accelerate the tightening of monetary policy.

But don’t expect to hear from the Fed governors and Fed presidents this week. Ahead of their Dec. 14-15 policy meeting, these folks will be in a media blackout.

Meanwhile, there are some notable companies announcing their quarterly earnings this week. See below.