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Bank of America lowers stock market forecast, calls for ‘slight recession’ this year

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Wall Street strategists are starting to lose faith in the stock market this year around the corner.

On Thursday morning, equity strategists at Bank of America Global Research led by Savita Subramaniam lowered their year-end price target on the benchmark S&P 500 to 3,600 from 4,500.

Bank of America estimates that the stock market will fall by about 5% by the end of this year.

As of Wednesday’s close, the S&P 500 had lost about 19% so far this year.

The move comes after Bank of America’s economics team called for a “mild recession” this year, and the firm’s new S&P target suggests the S&P 500 will fall 25% from its record high in January this year. . BofA notes that during recessions the average fall in the stock market comes to 31%.

While lowering its target for the S&P 500, Bank of America also cut its earnings forecast for this year and next year.

“We lower our EPS forecast by $221 (+6% YoY) for ’22 to $218 (+4% YoY) and by $230 (+4% YoY) for ’23 to $200 (-8% YoY) , 10% peak-to-trough EPS decline,” the firm wrote. “This is modest compared to the decline of the typical 15-20% economic slowdown, but should provide offset to healthy consumer and corporate balance sheets and higher nominal GDP.”

So in other words, even though Wall Street expects dark times for the stock market and economy, strategists maintain some relatively positive outlook around the outlook.

A trader works on the floor of the New York Stock Exchange (NYSE) on June 13, 2022 in New York City, US. Reuters/Brendan McDermid

Bank of America’s move comes a day after Michael Kantrowitz and his team at Piper Sandler, who became the first Wall Street strategists to predict losses for the index by the end of the year, cut their price target from 4,000 to 3,400. done.

Piper Sandler remains more positive on corporate earnings this year than its peers at Bank of America, however, suggesting the S&P 500 will earn $230 in profits per share this year.

Last week, Oppenheimer Asset Management strategist John Stoltzfuss — one of Wall Street’s most bullish bulls — made waves when he, too, lowered his forecast for the S&P 500 from 5,300 to 4,800.

Stoltzfus’s lower forecast, however, still implies a rally of around 15% by the end of the year. Like the team of Kantrowitz and Piper Sandler, Stoltzfus expects S&P 500 earnings to hit $230 per share this year.

Stoltzfus cited the war in Ukraine, the COVID-related lockdown in China and sticky inflation, saying that “we were creating enough uncertainty and sour sentiment to negatively challenge equity market performance to a greater extent than previously thought.” “

This rapid reworking of forecasts comes as the start of the second-quarter earnings season, investors will be watching closely for signs that business conditions are deteriorating as inflationary pressures persist and investors will be watching more than the Federal Reserve. Be prepared for aggressive action.

BLS data released on Wednesday showed inflation rose 9.1% in June over the previous year, the sharpest increase in prices since November 1981.

Following this report, Wall Street economists began revising expectations for interest rate hikes later this month, with at least one firm staking 100 basis points, or 1%, from the Fed on July 26-27. At the end of the meeting, an increase was demanded.

As of Thursday morning, markets were pricing in a more than 80% probability of the Fed going through the move.

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