Bank of America cut its 2022 target for the S&P 500 by 900 points to 3,600, following a prediction it made this week that a recession would hit the US this year.
The new target for closing the year is “the lowest in the market”, Bank of America’s strategic analysts acknowledge in their report yesterday.
As Marketwatch points out, other major Wall Street banks have also recently cut their estimates for the S&P 500, following the strong blow the US stock market took in the first half of 2022.
Credit Suisse earlier this month cut its target for Wall Street’s “major” index to 4,300, while in late June analysts at Citigroup had downgraded their own forecast to 4,200, a revision they said was determined by a combination of scenarios “soft landing” of the economy and recession, as the Federal Reserve aggressively raises interest rates to combat soaring inflation.
It is noted that after yesterday’s close, the S&P 500 is at -20.5% through 2022 having long since entered a bear market.
The worst-than-estimated inflation report released this week reignited concerns that the Fed will continue its hawkish strategy, with big rate hikes that could trigger a recession.
For their part, BofA analysts expect the Federal Reserve to stop raising interest rates in the first half of 2023, while the second half will begin to cut them. “The Fed is projected to reach a range of 3.25% – 3.5% by the end of 2022,” they estimate.
Meanwhile, BofA now expects the yield on the US 10-year note to fall to 2.75% by the end of the year, down from a previous forecast of 3.5%
“The market usually leads the economy, reaching highs before the recession starts and recovering before it ends. But occasionally it lags (e.g. 1980),” the bank’s analysts point out.
At the same time, they also downgraded the outlook for corporate profits in the S&P 500 this year to $218 from $221, while for 2023 they reduced their forecast to $200 from the $230 they previously saw.
Finally, the bank’s “worst-case” scenario for the S&P 500 this year was kept at 3,000 to 3,200 points for the index, according to the report.
Source: Capital
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