Wall Street analysts are turning bearish in 2023 for the first time in 23 years

A bad year for stock markets ended two decades of optimism and turned Wall Street strategists into bears. Average analyst forecasts compiled by Bloomberg You expect a decline in the S&P 500 for the next yearthe first time the average market expectation has been negative since 1999. Most have gradually increased their pessimism as the year’s economic “shocks” progress.

Strategists often say they don’t have a crystal ball, and the breadth of predictions made by 17 companies proves it. Depending on which analyst you look at, the S&P 500 will do it all in 2023, From an increase of 10% to a decrease of 17%in what is assumed to be the largest margin of error since 2009. Behind all this uncertainty is uncertainty about what the Federal Reserve will do to address inflation and labor market overheating, and whether the projected US recession will be more or less severe.

“There’s an economic divide, and that’s what divides market forecasters,” said Rich Weiss, chief investment officer, multi-asset strategies at American Century Investments. “Having the stock market go down two years in a row doesn’t happen that often. That means this recession is going to be really bad and the market keeps going down or flat for a while longer.”

In nearly a century of historical data, A losing streak of two or more consecutive years has only happened four timesThe last episode took place during the bursting of the dot-com bubble. The S&P 500’s average projection of 4,009 points predicts a decline of more than 1% by the end of 2023 compared to Thursday’s close.

With December already underway, 2022 remains one of the toughest years for investors in the past decade. “Bargain” buyers were drawn to the violent bounce, but saw stocks fall further soon after. Outside of commodities, all major financial assets lost money. Even trades that were once used as a hedge during market downturns, such as buying put options in the S&P 500, have failed.

Most investors and strategists didn’t expect this year to come, in part because the Fed initially insisted that inflation was temporary and then had to accelerate monetary tightening to combat rising prices.

The S&P 500 has plunged into a bear market, down 25% from its January high. Even after rising 14% from its October low, The index is still more than 300 points below the most pessimistic forecast What the strategists did 12 months ago.

Opinion Division

However, when you hit rock bottom is another discussion. Pinky Chadha, an analyst at Deutsche Bank, whose estimate for the S&P 500 of 4,500 is an all-time high, expects stocks to bottom in the third quarter, when the expected US recession begins. He adds that the index will drop to 3,250 before starting a strong climb to end the year on the upside.

Morgan Stanley’s Mike Wilson agrees that the bear market isn’t over yet, though he points to a floor in the 3,000-3,300 range during the first quarter, when the Federal Reserve stopped raising interest rates, and thinks the S&P 500 will end the year at 3,900. While his team isn’t warning of a full recession, they do expect a combination of rising labor costs and weakening companies’ pricing power to unleash a wave of dividend cuts that will affect stock prices.

“We view this scenario as economic chaos, a scenario that remains negative for margins/earnings and therefore equity markets,” Wilson, who ranked as the best portfolio strategist in this year’s survey of US institutional investors, wrote in a note last month.

Divided opinion forces investors to consider a wide range of possible scenarios

Such a mixed outlook does little good for money managers who have pushed their cash holdings to a decade high while waiting for investments to get back on track.

While wildly different views are troubling, this isn’t necessarily a bad thing, says Anett Chachra, fund manager at Janus Henderson Investors, because it forces investors to consider a wide range of potential scenarios, making the market less vulnerable to surprises.

“When volatility is high, the market is already evaluating that very different things can happen throughout the year, so it becomes even more challenging for what finally happens outside of all expectations and causes a real shock to the market,” he said. However, he added, “I don’t begrudge the task of making these projections.”