Seldom have Wall Street soothsayers been so baffled afterwards

(Bloomberg) — From top to bottom on Wall Street, forecasters have been caught off guard by how the first half of 2023 has unfolded in financial markets. It seems to have shaken their faith in what the winning playbook should be for the rest. At the start of the year, a handful of predictions dominated strategists’ annual outlook. A global recession was imminent. Bonds would crush equities as equities retest bear market lows. Central banks would soon be able to halt the aggressive rate hikes that made 2022 a miserable year in the markets. As growth stumbles, risky assets would suffer more. But that bearish outlook was shattered as stocks rallied even as the Federal Reserve continued to raise interest rates in the face of stubbornly high inflation. And what was supposed to be the year of bonds has come crashing down: US Treasuries nearly wiped out their tiny gain for the year as yields test new highs and the economy remains surprisingly resilient in the face of the downturn. onslaught of Fed monetary policy. As a result, financial soothsayers have rarely been more at odds about where the markets will go. This is evidenced by forecasts of where the S&P 500 will end the year: there is a 50% difference between Fundstrat’s most bullish call (which sees it rise nearly 10% higher at 4,825) and Piper Sandler’s most bearish call (down about 27% at 3,225), according to those compiled by Bloomberg. The mid-year gulf hasn’t been this wide in two decades.

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Some are now canceling recommendations or delaying their appeals. Strategists at JPMorgan Chase & Co. recently exited a recommended long position in five-year Treasury bills. Those at the BlackRock Investment Institute, which suggested a push into higher quality bonds earlier this year, now have a neutral view of the sector. At Bank of America Corp. – and elsewhere – the recession once expected for this year has been pushed back as growth holds up stronger than expected. In January, he offered a contrarian outlook, saying negative consensus among strategists meant risky assets like stocks could be on the verge of rebounding. “With the consensus being so bearish to start the year, rather than needing a positive catalyst to spark a rally, all the market needed was a lack of bad news,” he said. ‘Whenever we face mixed news and market messages, we always defer to the markets.’ to account for the rally in stocks – even if they see modest gains, or declines, for the rest of the year.Goldman Sachs raised an initial year-end target of 4,000 for the S&P 500 to 4,500 after the bank lowered the odds of a recession.It closed just under 4,400 on Friday.Bank of America, Barclays, BNY Mellon Investment Management, Citigroup, Morgan Stanley and Wells Fargo Investment Institute are among those forecasting that it will end the year lower than it is now.BlackRock is betting on the AI ​​boom, even as it continues to warn of the dangers haunting developed market stocks. While around a third of the two dozen strategists surveyed by Bloomberg have already improved their targets and measures of short-term sentiment have improved, large investors remain cautious. A survey by HSBC Holdings Plc of the top 60 asset managers shows they have become more austere on the long-term outlook, making them even more pessimistic about high-yield bonds and stocks and fuels an even stronger preference for long-term public debt. Meanwhile, the strategists’ average year-end outlook is for the S&P 500 to decline about 8% over the last six months of 2023. This is the most bearish second-half view since at least 1999.

“It’s premature to say that year-end bearish calls are really wrong,” said Steve Sosnick, chief strategist at Interactive Brokers. “Being bullish on equities in the face of the biggest rate hikes in a generation, alongside persistent quantitative tightening, flies in the face of that logic.” On the contrary, continued pessimism can be presented as a good sign for risky assets. , as it suggests unspent purchasing power that could push stocks higher when they are reinvested in the market and the bears finally give way. This has been happening all year, as defensive investors have been under pressure to chase the gains.

One thing is certain, while some bears are holding their own, the few bulls at the start of the year are increasingly bullish. Fundstrat’s Tom Lee, who already had the highest year-end forecast for the S&P 500, raised his estimate further to 4,825. Meanwhile, Ed Yardeni, founder of his eponymous research firm, who called for a soft landing at the end of last year, says the worst may be behind us and the economy may already be picking up speed. ‘continuous expansion,'” Yardeni said. “The pessimists attached great importance to the tightening of monetary policy. They kept waiting for a recession and just like Godot, it just didn’t show up.

Here’s a sampling of what some of the biggest names are telling clients: Bank of America The bank has raised its target for US stocks and predicts a later, milder US recession.

Barclays ResearchThe firm has shed its preference for bonds over equities and sees a more moderate economic contraction in the United States.

BlackRock Investment Institute, the world’s largest asset manager, just issued a bullish call on AI while remaining cautious on developed market equities.

BNY Mellon Investment Management’s firm sees higher-than-expected recession risks and pricing pressures.

CitiThe bank maintained a target of US equities which suggests losses in the second half and predicts a US recession in 2024.

JPMorgan’s bank currently expects equity weakness in the second half of the year amid a challenging macro backdrop.

Morgan Stanley

The bank sees the United States and Europe avoiding a recession, but sees no gain for U.S. stocks until June 2024.

Wells Fargo Investment Institute is pushing back its recession forecast and lowering its target range of returns for US equities.

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