By Isabel Wang
Wall Street investment banks, brokers and research firms have revised upwards their estimates for 2023 in the past two months
Despite the U.S. stock-market rally this year bolstered by the euphoria around artificial intelligence and hopes that the U.S. economy can avoid a recession as inflation falls, stock prices have been anything but simple to predict this year, a challenge exemplified recently by some of the Wall Street's most prominent analysts.
Bank of America Corp.'s Savita Subramanian is the latest Wall Street strategist to boost her target for the S&P 500 SPX. She projected the benchmark index would rise to 4,600 by the end of 2023, a roughly 3.5% advance from the Tuesday's close of 4,443.
The artificial-intelligence revolution will contribute to growing labor-market productivity, even among stodgy midsize companies, Subramanian said in a Wednesday note. "Old-economy, inefficient companies could benefit as much as tech and growth, but have not priced this theme in as richly," she added.
Subramanian's new target is one of the highest on Wall Street, behind only Oppenheimer, Fundstrat, Piper Sandler's Craig Johnson, Credit Suisse and Société Générale, according to data compiled by MarketWatch.
Last week, Manish Kabra, head of U.S. equity strategy at Société Générale, lifted his S&P 500 target, predicting the index will reach 4,750 by the end of 2023 versus a prior 4,300.
See: Wall Street's most bullish strategist warns of choppiness in stocks, still sees the S&P 500 touching a record high this year
Last month, Oppenheimer Asset Management analysts projected the S&P 500 would jump above its record high by the end of 2023, lifting their year-end price target for the large-cap index to 4,900 from the 4,400 projection they set in December, said a team of strategists led by John Stoltzfus, chief investment strategist.
Oppenheimer's new price target represents a 10.3% increase from Tuesday's closing price for the benchmark index, which has gained 16.1% so far this year, according to FactSet data.
Even though the market's leading doomsayers sounded less bearish than usual, some strategists, such as Morgan Stanley's chief equity strategist Mike Wilson, still sees the S&P 500 dropping to 3,900 by the end of this year, implying a 12.2% drop from where it settled Tuesday.
Among 20 Wall Street investment banks, brokers and research firms that MarketWatch collects S&P 500 estimates from, nearly half of them have revised upwards their estimates for 2023 in the past two months, according to data compiled by MarketWatch.
However, the spread between the most bullish and bearish S&P 500 year-end price targets still remains unusually high.
The numbers range from Oppenheimer's 4,900 at the high end to BNP Paribas' 3,400 at the low end. The top-end forecast is 44.1% above the low-end estimate, up from a 39.7% spread in mid-June, according to MarketWatch calculations of the data. The estimates put the average target for the S&P 500 index at 4,360 for the end of 2023, a decline of 1.9% from Tuesday's close (see table below).
Wall Street Firm 2023 S&P 500 target as of June 13 2023 S&P 500 target as of September 20 Oppenheimer 4400 4900 Fundstrat Global Advisors 4750 4825 Piper Sandler's Craig Johnson 4625 4825 Société Générale 3650 4750 Credit Suisse 4050 4700 Bank of America 4300 4600 Citigroup 4000 4600 BMO Capital Markets 4550 4550 Goldman Sachs 4500 4500 Deutsche Bank 4500 4500 Evercore ISI 4450 4450 RBC Capital Market 4250 4250 JPMorgan 4200 4200 Jefferies 4200 4200 Barclays 3725 4150 Wells Fargo 4100 4100 Morgan Stanley 3900 3900 UBS 3900 3900 Capital Economics 3900 3900 BNP Paribas 3400 3400 Average 4167.5 4360 Source: MarketWatch
See: The 'narrow breadth' chorus has fallen silent. What broadening participation in stock-market rally means for investors.
Jeff deGraaf, chairman and head of technical research at Renaissance Macro Research, said while Wall Street analysts just started adjusting their targets for the S&P 500, his model is showing the benchmark index is currently trading 10% higher above the median price forecasts (see the middle chart below).
"You would think rationally that that must be bad because the strategists will get it right and therefore the market has to come down," said deGraaf.
However, based on his model, what happened over the past 20 years was that when the S&P 500 traded 2% to 12% above the median price target of strategists, the market would have "a meaningful higher-than-average return" over the trailing six months, deGraaf told MarketWatch in a phone interview in early August (see the bottom chart below).
"In other words, the market gets it right more than the strategists, because [if] the strategists get it right -- what you'd say is every time the S&P 500 is above the targets, it would come down to meet the targets -- but that's not what happened," deGraaf said.
-Isabel Wang
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09-20-23 1306ET
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