A sneak preview of Wall Street's 2023 stock market forecasts

Sam Ro · Contributor
9 min read

This post was originally published on TKer.co

Stocks surged 5.7% on Monday and Tuesday and then shed almost all of those gains on Wednesday, Thursday, and Friday. When it was all said and done, the S&P 500 closed at 3,639.66, up a modest 1.5% from its Sept. 30 close of 3,585.62, which was the lowest closing price of 2022. The index is now down 24.1% from its January 3 closing high of 4,796.56.

There’s a lot to be said about what’s moving markets. (You can begin to understand what’s going on by reading this and this.)

One thing is clear: None of Wall Street’s most prominent stock market strategists saw this year’s sell-off coming.

Total employment is continues to grow. (Source: BLS via FRED)

As of Dec. 5, 2021, 14 strategists followed by TKer had 2022 year-end S&P 500 targets ranging from 4,400 to 5,300. At the time, the implied one-year returns ranged from -3% to +17%.

It speaks to the difficulty of accurately predicting short-term returns in the market when some of the most experienced, well-resourced professionals are this far off.

With that in mind, a handful of strategists have already communicated to clients where they expect the S&P 500 to head in 2023. Here’s a roundup:

  • Capital Economics: 3,800 (as of 10/7/22)

  • Morgan Stanley: 3,900*, $219 EPS (as of 10/3/22) *This is a June 2023 target.

  • Citi: 3,900, $215 EPS (as of 10/3/22 via Investing.com)

  • HSBC: 4,000, $225 EPS (as of 10/4/22)

  • Goldman Sachs: 4,000, $234 EPS (as of 10/4/22)

  • Credit Suisse: 4,050, $230 EPS (as of 10/3/22)

  • UBS: 4,200, $235 EPS (as of 10/3/22)

Relative to Friday’s closing price, these targets imply returns of 4% to 15% by the end of 2023.

Generally speaking, the strategists expect little to no growth in earnings, on which they apply a P/E multiple in the mid to high teens. Most expect inflation to cool significantly, allowing the Federal Reserve ease up on its hawkish monetary policy stance.

I’ll say two things about one-year price targets.

First, most of the equity strategists TKer follows produce incredibly rigorous, high-quality research that reflects a deep understanding of what drives markets. The most valuable things these pros have to offer have little to do with one-year targets. (And in my years of interacting with many of these folks, at least a few of them don’t care for the exercise of publishing one-year targets. They do it because it’s popular with clients.) Don’t dismiss their work just because their one-year target is off the mark.

Second, don’t obsess over these one-year targets. Here’s what I wrote last December:

?? It’s incredibly difficult to predict with any accuracy where the stock market will be in a year. 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 firm’s level of bullishness or bearishness.

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