Wall Street’s Biggest Bear Ditches Call for 11% S&P Drop in 2023

(Bloomberg) — One of Wall Street’s biggest stock-market pessimists dialed back his bearish forecast for the S&P 500 Index.

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Greg Boutle, head of US equity and derivative strategy at BNP Paribas SA, had predicted that the benchmark would end the year at 3,400, an 11% drop from where it finished in 2022 and a 26% slide from July’s peak. It was the lowest target among strategists surveyed by Bloomberg.

But this week, after the market defied the gloomy forecast, he capitulated. Boutle raised his target to 4,150, anticipating a smaller drop during the last four months of the year than Morgan Stanley’s Mike Wilson (3,900) or Piper Sandler & Co.’s Michael Kantrowitz (3,600-3,800). The S&P 500 closed at 4,451 on Thursday.

The revised projection reflects the growing expectation that the US economy this year will avoid a recession, which was once widely expected to follow from the Federal Reserve’s aggressive interest-rate hikes. Instead, Boutle said he expects stocks will drift down as growth cools and analysts lower forecasts for corporate earnings.

“Our outlook for this year was always predicated on the idea of seeing a recession in the US,” Boutle said in an interview. “I think us, along with many people on the Street, have been surprised at the resilience of the data in the US.”

Boutle is among forecasters blind-sided by the surprising strength of the economy. That fueled a sharp rally in stock prices as investors priced-in anticipation that the nation will avoid a recession as the Fed edges nearer to wrapping up its rate hikes. Even with the pullback since the start of August, the S&P 500 is still up nearly 16% in 2023.

At this year’s peak in July, the S&P 500 exceeded the average Wall Street year-end target by the most since September 2020, according to data compiled by Bloomberg. That unexpected advance — and the more optimistic outlook — has resulted in a wave of strategists upwardly revising their S&P predictions.

BNP Paribas maintained its 3,400 target — even as the index tested 4,600 — for “longer than what was necessarily optimal” Boutle said.

“That wasn’t because we were not cognizant of the price action that was going on,” he said. “It was that we wanted to make sure that what we were doing was not marking to market but, instead, predicating the view on something that was logically consistent in terms of a forecast.”

The firm’s latest macroeconomic outlook implies that 2024 earnings estimates will be dialed back as growth ebbs. Yet even if the economy re-accelerates and earnings estimates move higher, Boutle said the bullish scenario is already largely priced-in.

For now, he said, BNP’s base case is “remaining in the range of uncertainty.”

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