NEW YORK — The worst may yet befall the stock market.
Since mid-October, Wall Street has recovered some of the index’s sharp losses from the year’s first ten months. It closed Monday just under 4,000, up more than 10% from its low two months earlier.
Many analysts predict that stocks will end 2023 in this range, if not slightly higher, after the Federal Reserve finally stops raising interest rates to bring high inflation under control. But, before we get there, much of Wall Street expects stock prices to fall sharply in the interim.
Morgan Stanley To Drop Lower Than The Previous Record
Consider Morgan Stanley’s prediction that the S& P 500 will fall to between 3,000 and 3,300 during the first three months of the new year. That means it could lose up to a quarter of its value from Monday’s close. The low end of that range would also be 37.5% lower than the early 2022 record.
The bank’s pessimism stems from its strategists forecasting much lower corporate profits than the rest of Wall Street. Businesses are feeling revenue pressure as manufacturing, and other sectors of the economy weaken. At the same time, Morgan Stanley predicts that profits will be squeezed on the other end due to higher wage costs as businesses increase their workforce.
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Wall Street Profits Set To Fall To Record Levels
Corporate profits are expected to fall below record levels beginning in 2022, allowing companies to return more cash to investors through dividends and stock buybacks.
To be sure, strategists led by Michael Wilson believe the S& P 500 could end 2023 at 3,900, not far from its current level.
Goldman Sachs strategists predict a trough in the year’s first half, possibly at 3,600. That represents a nearly 10% drop from Monday’s close, based on Goldman Sachs’ belief that the economy can avoid a recession.
If the economy does contract, as many Wall Street analysts predict, Goldman strategists led by David Kostin believe the S&P 500 could fall to 3,100.
Strategists at Deutsche Bank predict that the United States will enter a recession in the second half of 2023. The S&P 500 could fall to 3,250 before bottoming out about halfway through the recession, which the German bank expects to last until the end of the year. The S&P 500 could then end the year as high as 4,500 if stocks follow their usual playbook during recessions, according to strategists led by Binky Chadha.
SOURCE – (AP)
