Stronger-than-expected corporate results and guidance, coupled with optimism that the Federal Reserve is raising interest rates to combat decades of high inflation but may avoid damaging the economy, have lifted the S&P 500 about 13% from its mid-June low. . Analysts expect the S&P 500 to still finish higher this year.
According to the latest Reuters poll of strategists, the S&P 500 will end the year just above current levels after rebounding from bear market lows. The S&P 500 will end the year at 4,280, according to the median forecast of nearly 50 strategists polled by Reuters over the past two weeks, 3.4% above Monday’s close of 4,137.99. The median forecast was lower than a Reuters poll conducted in late May. Strategists expect the S&P 500 to continue rising in 2023, hitting 4,408 by mid-year, according to the median forecast in the latest Reuters poll. The Dow Jones Industrial Average will end the year at 34,200, up about 3.4% from Monday’s close, the poll showed.
Historically, professional investors and analysts have forecast poor stock market returns, but their forecasts offer a valuable glimpse into Wall Street sentiment. The S&P 500 is down about 13% this year since the global sell-off caused by the pandemic in 2020. Just over half of the strategists surveyed expect market volatility to rise, not fall, over the next three months.
Peter Cardillo, chief market analyst at Spartan Capital Securities in New York, said: “Going into September, it’s going to be a gloomy month for stocks. I think we might see some sort of pullback, but there’s no sign we’re going to make new lows because I’m Believe the market has made a new low; expect the S&P 500 to end the year at 4,350. Near the end of the year, we may start to rebound. The Fed will not be too aggressive. I see signs of inflation falling and I believe the labor market will soon be will start to weaken, which should keep the Fed from being too aggressive.”
The Fed has raised the federal funds rate by 2.25 percentage points this year in an attempt to tame decades of high inflation, and investors are still weighing how aggressive the central bank may need to go in the future. Investors hope that when top central bankers such as Federal Reserve Chairman Jerome Powell hold their annual symposium this week in Jackson Hole, Wyoming, they may reveal the magnitude of future rate hikes and the strength of the economy.
John Augustine, chief investment officer at Huntington National Bank, said: “We think there is a 50% chance of a U.S. recession next year. If we are in a recession, will the Fed remain aggressive? That’s what we don’t know. We have to hear from Powell. More news.”
Recent corporate results have supported the stock market. Most companies in the S&P 500 have reported results, and second-quarter earnings are expected to rise 8.8% from a year earlier, up from a July 1 forecast of 5.6%, according to IBES data provided by Refinitiv IBES. Analysts’ expectations for full-year 2022 profit growth have fallen slightly since early July, but they still expect 8% growth, the data showed.
Investors worry about whether profits are rising fast enough to support stock valuations, especially with the recent rally in stocks. The S&P 500’s 12-month forward price-to-earnings ratio is now about 18, compared with 22 at the end of December, and the long-term average is about 16, according to Refinitiv data.