Bank of America cut its 2022 target for the S&P 500 by 900 points, to 3,600, citing its forecast for a recession this year and expectations of a “pivot” by the Federal Reserve in 2023.
The new year-end target is the “lowest of the Street,” equity and quantitative strategists at Bank of America said in a report from BofA Global Research on Thursday. BofA now forecasts a “mild” U.S. recession starting in the second half of 2022, they said.
Other major Wall Street banks also recently cut their estimates for the S&P 500 after the stock market took a hit in the first half of 2022.
Credit Suisse earlier this month cut its target for the U.S. benchmark to 4,300. And in late June, analysts at Citigroup cut their forecast for the S&P 500 to 4,200, a revision they said was determined by a mix of “soft landing” scenarios and recession as the Federal Reserve aggressively raises interest rates to combat high inflation.
The S&P 500 SPX, -0.30% has tumbled about 20.5% this year after closing 0.3% lower on Thursday at 3,790.38. The index fell for a fifth straight day on Thursday, its longest losing streak since June 14, according to Dow Jones market data.
A hotter-than-expected inflation report earlier this week raised investor concerns that the Fed will continue on its hawkish path of big interest rate hikes, potentially triggering a recession.
BofA strategists said they expect the central bank to pause in the first half of 2023 and start cutting rates in the second half of 2023. “Forecasts are that the Fed will hike to 3.25%-3.5% by the end of the year,” they write.
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Strategists also said BofA now expects the 10-year Treasury yield to fall to 2.75 percent by the end of 2022, down from a previous forecast of 3.5 percent.
The yield on the 10-year Treasury note TMUBMUSD10Y, 2.944% rose 5.3 basis points on Thursday to 2.957%, snapping a three-day losing streak, according to Dow Jones market data.
“No two recessions are the same,” BofA strategists wrote. “The market usually leads the economy, peaking before recessions start and falling before recessions end. But sometimes it lags behind (e.g. 1980).”
The S&P 500 ended Thursday 3.37 percent above its 52-week low of 3,666.77 on June 16, according to Dow Jones market data.
BofA strategists revised their outlook for S&P 500 earnings per share this year to $218, down from $221, according to their report. They lowered their 2023 EPS forecast to $200 from $230.
Their “worst-case scenario” for the S&P 500 this year remains at 3,000-3,200, the report said.
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