EDITOR'S NOTE: Are you bullish or bearing on the state of the stock market? Whichever side you’re on, you don’t want to miss this. As the stock market's future hangs in the balance, a clash of financial wits unfolds in the debate you’re about to read. Wall Street's Mike Wilson, Ed Yardeni, and Jeremy Siegel present divergent outlooks on the direction of the markets in 2023. Join us as we dissect their arguments, scrutinize their positions, and evaluate their predictions. If you’re like most American investors, the state of your wealth hangs in the balance. It’s best to be informed, by both sides of the fence.
US stocks have notched impressive gains so far in 2023 despite banking chaos and mounting economic pessimism, surprising forecasters who held bearish views at the start of the year.
And now, with the second quarter in progress, experts are taking stock of the situation again and updating their predictions to factor in a slew of emerging risks - from a credit crunch and commercial real-estate risks to lingering financial-sector jitters and the looming risk of a recession.
JPMorgan's Marko Kolanovic, Morgan Stanley's Lisa Shalett and FS Investments' Troy Gayeski are among those who have warned that US stocks are now entering a danger zone, while Ed Yardeni thinks there's too much pessimism about the economy.
Here is a selection of the most recent stock-market predictions from high-profile investors, analysts and other experts.
The S&P 500 is likely to plunge between 27% and 52% from its current level of 4,130 points, Grantham said in a recent interview.
"The best we could hope for is that this market would bottom at about 3,000," he said. "The worst we should fear is more like 2,000."
Knowing that might sound extreme, Grantham noted the benchmark index touched 666 points in 2009, meaning if it bottoms at 2,000 points this time around, it will still have tripled over the past 14 years.
The stock market is heading for a sharp setback that could see the S&P 500 plunge about 22% over the coming quarters, and investors should start selling their holdings right away, according to the chief market strategist at FS Investments.
"There's no reason to wait. It's not like you're going to leave 10% upside on the table," Gayeski said during a recent episode of the "What Goes Up" podcast. "This is a golden opportunity to use this bear market rally to de-risk in advance of potentially very painful losses over the next six, nine, 12 months."
The stock market is underestimating the risk of an economic slump this year and even a mild recession would cause equities to tumble 15% or more from current levels, according to JPMorgan.
"On the downside, even a mild recession would warrant retesting the previous lows and result in 15%+ downside," strategists led by Kolanovic wrote in an April 17 note. "We therefore maintain a defensive tilt in our model portfolio this month, unchanged vs. last month, with an underweight in equities and overweight in cash."
The banking turmoil is threatening the wider economy and stocks are poised to slump in the weeks ahead, Siegel warned in his WisdomTree commentary this week. The author of "Stocks for the Long Run" cautioned the market may be nearing a peak if investors follow the famous investing adage and "sell in May and go away."
"I can see some further pressure in the short run," he wrote. "For now, it remains prudent to have a cautious near-term outlook on stocks, but I'm still very bullish longer term."
"The bear-market rally in stocks rolls on, yet much of the good news around Federal Reserve rate hikes, declining headline inflation and lower real interest rates has been discounted," she wrote in a Monday note.
"With much optimism priced in, especially around the sustainability of low interest rates that support extreme valuations, we are entering a dangerous phase."
Investors are headed for disappointment amid the ongoing stock market rally because earnings expectations are too optimistic, according Wilson.
"If there is one thing that can throw cold water on the large mega cap rally it's higher yields due to a Fed that can't stop hiking as soon as perhaps some investors are expecting... We think the recent collapse in breadth is the market's way of warning us we are far from out of the woods with this bear market."
To be sure, not everyone is a stock market pessimist.
Investors may miss out on potential stock market gains if they grow too wary about the US economy, which is likely to avoid an outright recession, Yardeni said as the S&P 500 inched closer to entering a bull market.
"I've been among the bulls, especially in late October … I thought there was way too much pessimism…in some of these surveys of confidence about the market, about as much pessimism as we saw back in March of 2009. And certainly, surely things aren't anywhere near as bad as that," he told CNBC on Monday.
Originally published by: Zinya Salfiti on Markets Insider
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