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The Tell: What big Wall Street banks say about where the S&P 500 will end 2022

The stock market has steadied at midyear, but after a historically ugly six months that saw the S&P 500 enter bear territory, big Wall Street banks offer diverging views on where equities are likely to end 2022.

Analysts at big banks have delivered a number of S&P 500
SPX,
-1.15%

target cuts, but there’s a wide variation between those who say the index has room to rise, and others who think the current bounce won’t last long in the face of what they see as a looming recession.

Analysts from Citigroup Inc. see the large-cap index finishing the year at 4,200, cutting their forecast in late June from 4,700 points. That’s still up significantly from Tuesday’s finish near 3,854. According to the Citi note in late June, “the better than feared earnings and signs of peaking rates” sets up a positive second half of the year.

Oppenheimer & Co.’s John Stoltzfus, chief investment strategist and one of the Wall Street’s biggest bulls, remains bullish on U.S. equities, but lowered his price target last week to 4,800 from a previous forecast of 5,330.

“Even in the face of uncertainty and palpable risks of recession, our longer-term outlook for the U.S. economy and the stock market remains decidedly bullish,” the strategists wrote in a client note last week. “We believe U.S. economic fundamentals remain on solid footing. U.S. growth should remain well supported by consumer demand, business investment, and government spending.”

Read more: Stock-market investors hunt for recession and inflation clues as earnings season kicks off

Investors have feared that a recession is looming over the U.S. economy in light of the stickier inflation and an aggressive central bank policy. Minutes from the Fed’s June policy meeting showed officials have been prepared to tighten policy even further in the second-half, though recognizing the hawkish rate hikes could slow down the economic growth. 

That said, Credit Suisse Group analysts last week said their revision, which lowered their S&P target to 4,300 is not due to “recessionary concerns”. 

“Recessions are most accurately characterized by a meltdown in employment accompanied by an inability of consumers and businesses to meet their financial obligations,” the Credit Suisse analysts wrote. “While we are currently experiencing a meaningful slowdown in economic growth (from extremely high levels), neither of the above conditions are present today.”

The U.S. economy added a robust 372,000 jobs in June, substantially higher than the 250,000 expected by economists polled by The Wall Street Journal, according to the monthly jobs report from the Bureau of Labor Statistics released Friday.

Bank

S&P 500 year-end target

Citigroup Inc.

4,200

Oppenheimer & Co.

4,800

Credit Suisse Group

4,300

Morgan Stanley

3,400-3,500

Wells Fargo

3,800-4,000

Some strategists don’t think the second half could bring moderate gains in the S&P 500. Morgan Stanley’s Michael Wilson argues that the economy is in the midst of the slowdown, and “due to the war in Ukraine and China’s extended zero covid policy, this slowdown is even worse than we expected,” wrote strategists led by Wilson in a note last week. 

Strategists at Morgan Stanley expect the S&P 500 to reach a fair value target of approximately 3,400 to 3,500 in the absence of a confirmation of a recession. However, if the economy really ends up in recession, the index could sink to 3,000 points late this year — “a temporary overshoot of our bear case point in time June ’23 price target of 3,350,” they wrote.

The S&P 500
SPX,
-1.15%

fell 1.2% on Monday, as investors awaited the kickoff of earnings season and Wednesday’s release of the June consumer price index. The Dow Jones Industrial Average
DJIA,
-0.52%

finished the day down around 164 points, or 0.5%, while the Nasdaq Composite
COMP,
-2.26%

shed 2.3%.

Read More: 4 big risks facing the stock market as earnings season kicks off

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