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Here’s What Wall Street’s Biggest Banks Predict For Stocks In 2022—And What To Watch For


Topline

Despite considerable challenges posed by the omicron variant and ongoing inflation surge, a majority of Wall Street firms predict the stock market will continue to rally next year—albeit modestly—thanks to strong corporate earnings, solid economic growth and easing supply chain issues.

Key Facts

Stocks have reacted sharply and market volatility has surged since last Friday, when the World Health Organization labeled the Covid omicron strain—first reported in South Africa—as a “variant of concern.”

The S&P 500 slid over 2% on Friday in the market’s worst day of 2021, before paring back some losses Monday after President Joe Biden said there was “no need” for new lockdowns in response to the omicron variant.

The S&P 500 lost nearly 2% the following day as the Federal Reserve warned that omicron poses risks to the economic recovery, before rising slightly on Wednesday.

So far this year, the S&P 500 is up roughly 25% to around 4,600. 

Most Wall Street analysts still forecast a positive year ahead for the benchmark index—though returns are likely to be below average.

BMO Capital Markets: 5,300

Analysts at the firm are among the most bullish on Wall Street, predicting the S&P 500 can reach 5,300 by the end of 2022—amounting to 15% upside from the index’s current price of 4,600. The bank believes that investors are too focused on inflation, which should moderate as supply chain kinks get straightened out next year. Combined with solid corporate earnings, that should continue to drive stocks higher in 2022, BMO analysts said. What’s more, the size of the Federal Reserve’s balance sheet “will remain very large for quite some time, which should continue to be supportive of stocks.”

Wells Fargo: 5,100-5,300

While pressures from higher inflation and supply shortages next year could hinder the economic recovery, there will still be above-average growth and gains for stocks in 2022, according to analysts at Wells Fargo. The bank recently upgraded its S&P 500 forecast from the 4,900 to 5,100 range, citing earnings as the “major driver of equity returns going forward.” While multiples will continue to expand, the firm doesn’t yet see any major risk of contraction given how low interest rates are. 

Goldman Sachs: 5,100

While markets will look very different than in 2021, Goldman still sees the S&P 500 rising slightly next year, predicting a nearly 10% gain from the index’s current levels. “Decelerating economic growth, a tightening Fed, and rising real yields suggest investors should expect modestly below-average returns next year,” the firm said in a recent note. While returns may not be as strong as in recent years, “the equity bull market will continue” as corporate profits help lift share prices.

JPMorgan: 5,050

Analysts at JPMorgan are also bullish on the stock market’s prospects next year, with the bank’s price target amounting to around an 8% gain from the S&P 500’s current price. Stocks should rise slightly in 2022 thanks to “robust” earnings growth as the labor market recovery continues, consumers remain flush with cash and supply chain issues abate, according to the firm. The main risk to JPMorgan’s market outlook is “a hawkish shift in central bank policy,” especially if supply-chain issues and labor shortages continue. 

RBC Capital Markets: 5,050

Like JPMorgan, the firm sees a slight gain for stocks in 2022, with heightened concern over rising Covid cases yet to derail the bull market. The new omicron variant is a reason for investors to “proceed with caution but not to panic,” RBC analysts said in a recent note. The firm did admit that there is likely to be more stock market volatility in the near term, especially as omicron could worsen ongoing supply chain issues.

UBS: 4,850

The market should be able to overcome concerns about the pandemic and high valuations, according to analysts at UBS, who see a nearly 5% gain for the S&P 500 next year. While stocks are “likely to have a pullback at some point,” strong corporate earnings and an eventual decline in Covid cases should help boost the market higher, the firm said.

Bank of America: 4,600

“There are too many similarities between today and 1999/2000 to ignore,” strategists at Bank of America said in a recent note. With signs of excessive speculation and high valuations in the stock market, the current environment resembles a late-cycle bubble akin to the dotcom boom in 2000, according to the firm. Bank of America now predicts a slightly negative year ahead for stocks, due to increased concerns about negative real interest rates, surging inflation, frenzied IPO activity and liquidity risks.

Morgan Stanley: 4,400

With one of the most bearish outlooks on Wall Street, Morgan Stanley analysts predict a nearly 5% decline for stocks in 2022. The S&P 500 is likely to pull back next year amid tightening financial conditions and slowing earnings growth, making current valuations look unattractive. the bank said. “While our economists remain bullish on GDP growth for next year, we are haircutting earnings growth for higher costs and taxes (in 2023).”



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