September 30, 2023

Wall Street fortune tellers have rarely been so bewildered about the future

(Bloomberg) — Up and down Wall Street, forecasters were trampled on by how the first half of 2023 unfolded in financial markets. That seems to have damaged their confidence in what the winning playbook should be for the rest. Heading into the year, a handful of forecasts dominated strategists’ annual outlooks. A global recession loomed. Bonds would beat stocks while stocks would once again test bear market lows. Central banks could soon end the aggressive rate hikes that made 2022 such a year of market woes. As growth stagnated, there would be more pain for risky assets. But that bearish outlook was shattered as stocks rose, even as the Federal Reserve continued to raise interest rates in the face of stubbornly high inflation. And what should have been the Year of the Bond spiraled out of control: US Treasuries almost wiped out their small gains for the year as yields test new highs and the economy remains surprisingly resilient in the face of the Fed’s monetary policy. As a result, financial fortune tellers have rarely been in disagreement over where the markets are headed. That’s relieved by predictions about where the S&P 500 will end the year: There’s a 50% difference between Fundstrat’s most bullish call (which sees it rise nearly 10% more to 4,825), and Piper Sandler’s most bearish call (down some 27% to 3,225), according to the one compiled by Bloomberg. The mid-year gap has not been this wide in two decades.

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Some are now withdrawing recommendations or moving up the timing of their calls. The strategists at JPMorgan Chase & Co. have recently given up a recommended long position in five-year Treasuries. Those at BlackRock Investment Institute, who suggested moving to investment grade bonds at the start of the year, now have a neutral view of the sector. At Bank of America Corp. – and elsewhere – the recession once expected for this year has been driven out as growth holds up stronger than expected. Bespoke co-founder Paul Hickey was one of those who didn’t get completely caught off guard. In January, he issued a contrarian outlook, saying the negative consensus among strategists meant risky assets like stocks could be poised for an uptick. “Because the consensus was so bearish to start the year, the market didn’t need a positive catalyst to start a rally, but a lack of bad news,” he said. “Whenever we are faced with conflicting messages from the news and the markets, we always look to the markets.” After a 37% rise in the Nasdaq 100 index this year, some strategists have revised their stock market targets to account for the stock rally — even as they see modest gains or declines for the rest of the year. Goldman Sachs raised its initial year-end target of 4,000 for the S&P 500 to 4,500 after lowering the likelihood of a recession. It closed just before 4,400 Friday. Bank of America, Barclays, BNY Mellon Investment Management, Citigroup, Morgan Stanley and Wells Fargo Investment Institute, among others, predict that the year will end lower than it is now. BlackRock is betting on the AI ​​boom, even as it continues to warn of the dangers plaguing developed market stocks. major investors remain cautious. A survey by HSBC Holdings Plc of the 60 largest asset managers shows that they have tightened up on long-term prospects, making them even more pessimistic about high-yield bonds and equities and fueling an even stronger preference for long-term government debt. At the same time, strategists’ average year-end outlooks represent about an 8% decline in the S&P 500 in the last six months of 2023, the most bearish picture for the second half since at least 1999.

“It’s premature to say that the bearish year-end calls are really wrong,” said Steve Sosnick, chief strategist at Interactive Brokers. “Being bullish on equities despite the sharpest interest rate hikes in a generation alongside continued quantitative tightening goes against that logic.” , because that indicates untapped buying power that could push stocks up when plowed back into the market and the bears finally give in. That’s what’s been happening all year, as defensively positioned investors have been under pressure to chase profits.

One thing is for sure, while some bears are holding their ground, the few bulls are becoming increasingly bullish from the start of the year. Fundstrat’s Tom Lee, who already had the highest year-end forecast for the S&P 500, has further raised his estimate to 4,825. Meanwhile, Ed Yardeni, founder of his eponymous research firm, which called for a soft landing late last year, says the worst may be over and the economy may already be accelerating. “ongoing expansion,” Yardeni said. “The pessimists attached great importance to the tightening of monetary policy. They kept waiting for a recession and, like Godot, it just didn’t show up.”

Here’s a sampling of what some of the biggest names tell clients: Bank of America The bank has raised its target for US equities and forecasts a later and milder recession in the US.

Barclays Research The company has abandoned its preference for bonds over equities and sees a milder economic contraction in the US.

BlackRock Investment Institute The world’s largest asset manager has just launched a bullish call on AI while remaining cautious on stocks in developed markets.

BNY Mellon Investment Management The company sees greater chances of a recession and higher price pressure than previously predicted.

Citi’s bank maintains a US equity target pointing to losses in the second half and sees a US recession in 2024.

JPMorgan The bank is currently forecasting weakness for equities in the second half of the year in a challenging macroeconomic context.

Morgan Stanley

The bank sees the US and Europe avoid recession, but sees no gains for US stocks until June 2024.

Wells Fargo Investment InstituteIt is delaying its recession forecast and lowering its target range for returns for US stocks.

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