While Wall Street strategists are getting gloomier on prospects for positive stock returns in 2022, one with the highest forecast for the S&P 500 at the end of the year is holding fast — even as the benchmark index has fallen more than 18% since its record high on Jan. 3 and is approaching a bear market.
The silver lining for John Stoltzfus, chief investment officer at Oppenheimer, is that historic drops tend to be followed by historic rallies. Stoltzfus told Yahoo Finance Live (video above) that he’s sticking to his year-end forecast of 5,330 for the S&P 500 — a more than 35% rally from current levels.
Stoltzfus pointed out that the 57% drop in the index during the financial crisis between October 2008 and March 2009 was followed by a 64% rally through the end of that year.
“When we look back at that, we think, stocks could really rally, so we’ll wait here a bit before we start addressing any thoughts of changing our target,” he said.
Stoltzfus is also encouraged by two fundamental factors.
First, earnings growth continues to be healthy, in his view, rising 10% in the first quarter with increases in nine out of 10 sectors.
Second, he has more confidence than some of his peers that the Federal Reserve will be responsive to a softening economy and falling equity markets.
“Anytime that the Fed is either going to add liquidity to the system or take liquidity out, invariably participants within the market who are detractors of the Federal Reserve will say, ‘The Fed is going to fail, the Fed will not pivot if it gets it wrong,’" Stoltzfus said. "And, indeed, as time comes to pass, the Fed takes the right action, it makes corrective measures, like the pivot in 2018, like the pivot we just saw at the end of last year."
Stoltzfus’s target may be the highest on the Street, but he’s not alone in saying that stocks have perhaps fallen too far. Goldman Sachs Chief U.S. Equity Strategist David Kostin wrote in a note that stocks have all but priced in a recession — an outcome he says is not inevitable. Instead, Kostin noted that the probability of an economic downturn sits at 35% over the next two years.
Binky Chadha, chief U.S. equity and global strategist at Deutsche Bank Securities, thinks the current sell-off has further to go and cut his price target on the S&P 500 to 4,750 from 5,250. Still, Chadha stated that if a recession is not imminent — and he doesn’t believe it is — stocks can recover by year-end.
As for some of the negative signals around consumer spending sent by the likes of Walmart and Target this week, Stoltzfus is choosing to look on the bright side since much of the retailers’ troubles seem to be linked to a shift in consumer trends and inventory management rather than a wholesale pullback.
“When it comes to shopping, Americans are proving, as they usually do, to be remarkably resilient,” he said. “In essence, what they do is, in my experience, the U.S. consumer will spend like a drunken sailor in good times and when times get bad, they have a vacuum cleaner, they vacuum the coins behind the sofa and behind the back seat of the car, and then they shop at cheaper stores as a rule.”