According to Bloomberg News, the new hawkish Federal Reserve along with the emerging and evolving virus has made things troublesome for the forecasters of Wall Street. The latest forecast put forward by Ed Clissold, who is the chief strategist working at Ned Davis research has said that there is potential for the earnings to go down and for the Fed to implement stringent policies so that the US equities to enter a shallow bear market, next year before S&P 500 bouncing back to conclude at a modest high.
This contrasts with what the counterparts at JPMorgan Chase & Co, Credit Suisse Group AG, and Jonathan Golub have forecasted raising the S&P 500 to 5,200 points increasing it by 200 points, citing two reasons as the probable cause that include improvement in corporate earnings and eased financial conditions. According to Marko Kolanovic and his team associated with JPMorgan say that volatility in the market will decline next year when there is economic recovery, and the end of the pandemic is seen.
The range of S&P 500 assessments that have been compiled by Bloomberg for the year 2022 ranges between 4400 and 5300, which is a 20% spread, which in a decade is the second widest.
While Ned Davis’ Clissold is at the bullish end he expects that the S&P 500 will finish next year at the 5000 mark, which is a 6% gain from the last closure, however, not before it slides at one point by at least 10%. This scenario would put an end to a steady gain. In the last 13 months, there was just one pullback and that was by 5%.
Bloomberg News reports that offering prediction about stocks and what it is going to be in the forthcoming months is a tedious exercise.
Professional forecasters faced a tough time to predict 2021, although a lot of the predictions were right but had constantly missed out on the market movements.
One wild card that could cause Clissold’s forecast to go haywire is profit margins, which he is anticipating to shrink by 30 basis points due to wage pressure. Although, he implied that in the last 40 years, there has rarely been an instance when there have been margin compressions while an ongoing economic expansion.
Another reason for the uncertainty is related to the Fed’s plan on tightening monetary policies. Rate hikes do not kill the bull markets, the pace at which the increase takes place matters which is related to equity performance during the tightening phase’s first year. The results indicate that there is a gain of 11% when the monetary tightening is slow against a loss of 2.7% when the tightening cycle is a faster one, as per data collected by Ned Davis over the last eight decades.
