A majority of Wall Street’s biggest firms have recently been slashing their S&P 500 forecasts for this year, predicting lower stock market returns as the Federal Reserve raises interest rates to fight surging inflation and also warning about the economic impact from Russia’s invasion of Ukraine.
Barclays is the latest major firm to warn of “limited upside” for stocks lowering its S&P 500 price target on Thursday to 4,500 from 4,800—implying a gain of less than 1% from the benchmark index’s current levels.
The bank predicts a major slowdown in consumer spending that will impact corporate earnings, and in turn dent economic growth and drag markets lower: Combined with the Federal Reserve’s aggressive monetary policy tightening, that presents a “dual threat for equities,” strategist Jonathan Millar said in a note.
Goldman Sachs cited tightening monetary policy and geopolitical tensions after having downgraded its S&P 500 price target twice since early February, most recently to 4,700—implying a nearly 5% gain for the index.
The firm warned that surging commodity prices due to the Russia-Ukraine conflict will likely result in slower economic growth, with analyst David Kostin putting the odds of an upcoming recession at between 20% to 35%.
JPMorgan’s Marko Kolanovic also recently lowered his S&P 500 price target to 4,900 (which still implies a nearly 10% gain) as he acknowledged that a more hawkish Fed “remains the strongest headwind,” but also added that “the market still has upside,” especially as he predicts geopolitical risks to subside in the coming weeks.
Morgan Stanley’s Mike Wilson, meanwhile, worries about tightening monetary policy and its effect on GDP and earnings growth, predicting that it will likely continue to drag markets lower: He forecasts the S&P 500 to end 2022 at 4,400 (roughly 2% lower than its current levels).
“For the U.S. economy, we now see stagflation with persistently higher inflation and less economic growth than expected before the war,” said Ed Yardeni, president of Yardeni Research, in a note earlier this month. “A recession can no longer be ruled out,” he added, with his remarks coming after he slashed his year-end S&P 500 forecast to just 4,000.
Not all forecasts are sounding the alarm just yet, however: Some Wall Street experts still remain bullish about the market’s prospects, citing economic growth that has remained solid despite multiple headwinds. Credit Suisse’s Jonathan Golub has a 5,200 price target for the S&P 500 (13.5% upside), Deutsche Bank’s Bink Chadha has a 5,250 price target (14% upside) and BMO’s Brian Belski has a 5,300 price target (15% upside).