Wall Street's 2022 outlook for stocks 🔭

Also, a look at last week and next week

Stock market forecasters are divided on what’s next. (Source: Getty Images)

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 firms’ 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.

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)