Bank of America lowers S&P 500 target to ‘lowest on the street’ following recession forecast

Bank of America has lowered its 2022 target for the S&P 500 by 900 points to 3,600, citing its forecast for a recession this year and expectations of a “pivot” from the Federal Reserve in 2023.

The new year-end goal is “the lowest on the street,” Bank of America equities and quantum strategists said in a BofA Global Research report on Thursday. BofA now predicts a “mild” U.S. recession starting in the second half of 2022, they said.

Other major Wall Street banks have also recently lowered their estimates for the S&P 500 after the stock market was hit hard in the first half of 2022.

Credit Suisse lowered its US benchmark target to 4,300 earlier this month. And in late June, Citigroup analysts lowered their S&P 500 forecast to 4,200, a revision they said was determined by mixing scenarios for “soft landing” and recession as the Federal Reserve aggressively raises interest rates to combat high inflation .

S&P 500 SPX,
has fallen about 20.5% this year after closing 0.3% lower on Thursday at 3,790.38. The index fell for the fifth day in a row Thursday, its longest losing streak since June 14, according to Dow Jones Market Data.

A warmer-than-expected inflation report earlier in the week sparked investors’ concerns that the Fed will continue on its high path with large interest rate rises, potentially causing a recession.

BofA strategists said they expect the central bank to pause in the first half of 2023 and begin lowering interest rates in the second half of 2023. “The Fed is expected to rise to 3.25% -3.5% by the end of the year,” they wrote.

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The strategists also said that BofA now expects the 10-year government interest rate to fall to 2.75% by the end of 2022, compared to an earlier forecast of 3.5%.

The yield on the 10-year government bond TMUBMUSD10Y,
rose 5.3 basis points Thursday to 2.957%, easing a three-day losing streak, according to Dow Jones Market Data.

“No two recessions are alike,” wrote the BofA strategists. “The market is typically leading the economy when it peaks before the recessions begin and declines before the recessions end. But it lags sometimes (for example, 1980).”

The S&P 500 ended 3.37% above its 52-week low of 3,666.77 on June 16 on Thursday, according to Dow Jones Market Data.

BofA strategists have revised their outlook for the S&P 500’s earnings per share this year to $ 218, down from $ 221, according to their report. They lowered their 2023 EPS forecast to $ 200 from $ 230.

Their “worst case” scenario for the S&P 500 this year remains at 3,000-3,200, the report shows.

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