Analysts forecast the S&P 500 to rise 9.6% in 2022

The S&P 500 Index had another very strong year, rising 26.9% as stock market forecasters expected a more moderate gain of 7.7%. Although it is impossible for them to be quite right, keep in mind this saying: “Those who live off the crystal ball end up eating glass” when looking at the results, they were not too far from reality over the past 12 years.

During this period, analysts’ projections were split evenly between overly optimistic and overly pessimistic. In six of them, they overestimated the performance of the S&P 500 for the year and in the other six, they underestimated it.

However, in all of them, analysts started the year predicting that the market would end higher with increases ranging from 6.6% in 2020 to 24.4% in 2019 (when it finished 28.9%). % upper). It’s only been three years since the S&P 500 ended lower; down 4 cents in 2011; 0.7% in 2015 and 6.2% in 2018.

The worst year the analyst overestimated the index’s performance was 2018, when it was 13% below its target. The target was 2,883 but it closed at 2,507. This was an above-average annual gain of 19.4% in 2017 and expectations were likely exceeded due to the reduction in performance. corporate tax just signed.

The second worst year for which analysts overestimated the performance of the index was 2011 with a deficit of 11.1%. Their average target, by John Butters at FactSet, the S&P 500 closed at 1,415, but ended at 1,258.

The worst year analysts underestimated the index’s performance was this year’s 26.9% gain when it closed at 4,766 from their start-of-year estimate of 4,044. (note that this would have been a gain of 7.7%). Analysts lost 17.8 percentage points.

The second most serious underestimate of 13.3% occurred in 2013 when analysts forecast a close of 1,632 against an actual close of 1,848. Again, note that a close of 1,632 would have resulted in a gain of 14.4% over the actual gain of 29.6%.

One of the reasons analysts tend to underestimate market developments is that they would rather under-promise and over-deliver. Investors tend to feel better when the markets are stronger than expected and who wouldn’t want happy customers. Another reason is that analysts prefer to increase forecasts during the year rather than reduce them.

Over the past three years, the analyst’s consensus target has been lower than the actual year-end result, with differences ranging from 3.6% in 2019 to 17.8% this year.

  • 2010: target

    1275; Actual 1,258; short of 1.4% of target
  • 2011: Target 1,415; Actual 1,258; short of 11.1%
  • 2012: target 1,475; Actual 1426; short of 3.3%
  • 2013: target 1,632; Actual 1,848; outperform by 13.3%
  • 2014: objective 1,974; 2,059 real; outperform 4.3%
  • 2015: target 2,236; Actual 2,044; 8.6% short
  • 2016: Target 2,343; Actual 2239; short of 4.4%
  • 2017: Target 2,461; Actual 2,674; outperform by 8.6%
  • 2018: target 2,283; Actual 2,507; short of 13.0%
  • 2019: Target 3,118; Actual 3,231; outperform by 3.6%
  • 2020: target 3,443; Actual 3,756; outperform by 9.1%
  • 2021: Target 4,044; Actual 4,766; outperform by 17.8%
  • 2022: target 5,225

The S&P 500 was helped by the rise in P / E multiples

Although the stock markets have seen a few significant declines over the past decade, one of the primary valuation measures or price / earnings multiple has essentially seen an increase in the amount investors are willing to pay for earnings. One of the key questions is whether investors will still be willing to pay an above-average multiple as the Fed begins to tighten.

Profit growth will slow

While the S&P 500 earnings growth rate will almost certainly slow in 2022 from 46% in 2021, it is expected to increase by 8.7% and be 37% higher than before the 2019 pandemic. If the multiples P / E could stay the same in 2022, the market rise of 9% would be considered very solid, especially after such a good performance over three years.

However, the biggest risk to the equation of market earnings times the P / E ratio is probably falling from the current multiple of 21x.

Outlook 2022

One way to provide a range for the end-of-year 2022 value is to parenthesize the analyst’s estimate with the worst shortfall of 13% and the worst underestimate of 13.3% and 17.8%. . While I include this year’s 17.8% outperformance, due to what hopefully are one-off Covid-19 events and vaccine rollout, I think it’s best to use the 13.3% of 2013. These are the final values ​​of the S&P 500 based on the three scenarios and the loss or gain of the index.

  • Low-end: 4,544, which would be 4.7% lower than today’s close
  • High-end (13.3%): 5,918, up 24.2%
  • High-end (17.8%): 6,157, up 29.2%

Tom Lee of Fundstrat has 5,100 goal by the end of 2022

Tom Lee is one of the most visible and accurate forecasters in the business. It has remained roughly bullish over the past 18 months as markets have had to navigate Covid-19.

His goal of 5,100 is based on a 2023 profit of $ 250 for S&P 500 companies multiplied by a P / E multiple of 20.5x. He points out on the chart below that the biggest downdraft for the S&P 500 was 5% in 2021 and that markets could drop as much as 10% in 2022. However, he ends the year with an increase of 6%. , 3%.

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