Sunday, October 2

The market shapes the consensus for 2022: shadows on the S&P 500 and lights in Europe and Japan

The capital markets outlook in 2022 points to another year of appreciation for the S&P 500. So believe eight of the ten investment banks surveyed by Business Insider. After two years of high volatility, after which a generalized correction of the gains acquired by investors is prepared. The index touched an increase of 27% in 2021. And it exceeded 4,500 points, after, at the end of March, beset by doubts about the evolution of vaccination campaigns and the new variants of Covid-19, it fell below 2,500. All one roller coaster of sensations that, in 2022, they will also inherit ghosts from the recent past such as persistent inflation, the consistency of bottlenecks in international trade and logistics services and new emergencies of the coronavirus that will add to the fears of a stock market crash, which has conspicuous by its absence in 2021.

Despite the hurricane force winds, most predictions exude optimism. A faith in the readjustment of consumer demand, in the robustness of household savings and in the positive prospects for the global situation, which will raise -they say- their capital gains. However, as always, there are also voices that point to a dangerous overvaluation of the price of assets and that favor a monetary policy of the Federal Reserve that will inevitably take into account this irrational exuberance of the markets and will contain investment impulses.

The top ten Wall Street investment firms they transfer their forecasts. Bank of Montreal, Wells Fargo, Credit Suisse, Goldman Sachs, JPMorgan, Royal Bank of Canada, Jefferies and UBS, on positive earnings criteria. The majority, in double digits, in the whole of the year. But with Bank of America and Morgan Stanley announcing losses. Under a scale that oscillates in a range between 4,400 points – which would mean a loss of 4% – and 5,300, a gain of 14%.

Bank of Montreal: 5.300 puntos (14%). “We believe that North American stocks are going to move to seal the fourth consecutive year of positive returns at the end of 2022. Although less generous, they will register normal and logical scales. Our models give us a target price of the indicator on earnings of $ 245 ”. By giving greater predilection to a “strong possibility that inflation will give way in the second half of the year and, therefore, cushion the rise in interest rates” from the Fed.

Wells Fargo: between 5,100 and 5,300 points (10% – 14%). “Despite the expiration of the Federal Reserve bond purchase program in 2022, we expect a monetary policy of clear support for the price of securities and assets.” Budget management will be less intense as it is a year with midterm elections that generate a feeling of concern, which will not prevent the earnings per share (Earnings Per Share, or EPS) of the S&P 500 from increasing by $ 235 in 2022, after to register an increase of 210 in 2021 ”.

Credit Suisse: 5,200 puntos (12%). “We increased our target price in the S&P 500 for the year 2022 from 5,000 points due to the robust projections of economic growth in both nominal and real terms and the strong margin of prosperity of the post-Covid cycle that will generate a strong discount rate. in the purchase of assets, despite the tightening of monetary policy by the Fed ”.

Goldman Sachs: 5,100 points (10%). “9% rise in the indicator, but 10% if the return on profits is included, including dividends. 2022 will follow in the wake of 2021 with growth of 8%, up to an increase of $ 226 in the average price per share, and a 4% increase, up to $ 236, in 2023. Our EPS radar is 2% above the consensus , because there are too many companies with real options to expand their profit margins beyond 40 basis points, up to 12.6%. This scenario, however, will be corrected in the following year due to the corporate tax reform ”.

JP Morgan: 5,050 points (9%). “It represents a small percentage of appreciation compared to 2021, but we believe that international assets, emerging markets and the market cycle will be the drivers of this increase, which, however, will be offset by the rise in the price of money and the tightening of monetary policy in the US, which will be felt in the rest of Wall Street, even on the Nasdaq ”. In the opinion of its experts, the gains will continue because the three crises will be resolved: the employment crisis, alluding to the phenomenon of the Great Resignation, which will add vitality to the labor market; that of demand, motivated by the logistics and commercial crisis and the energy crisis. As well as the proper resumption of business value chains.

RBC: 5,050 points (9%). “On average, it is a higher increase, compared to 7.3% in November because the fundamentals have improved qualitatively; to the point that we see a year of solid, albeit more moderate gains, compared to 2021. Both value chains and inflation will gradually clarify margins and dilute volatility. While the variants of Covid-19 will not distort the global economic horizon ”.

Jefferies: 5.000 (8%). “Real and nominal growth is not going to be a problem in 2022 as US consumers, businesses, the government and banks will incentivize spending and raise the consumption rubric of domestic demand in the country. The effects of work and earnings will lead to better market valuations, up to $ 233 EPS. An increase of 15% ”. The basis for the S&P 500 to reach 5,000 points.

UBS: 4,850 points (4%). “We see the S&P 500 between 9% and 10% gains in the first half of the year, when it will break the 5,000 point mark. But from then on, the earnings data will recede due to the increase in interest rates. With these lower liquidity rates, the favorable winds will move to Europe, which, over the course of three to six months, will outpace US stock market development. Of course, at the expense of subsequent corrections on both sides of the Atlantic ”.

Bank of America: 4.600 puntos (-1%). “Of course, with an EPS rise of 6.5%, 30 basis points over margins, due to the strong growth in dividends, of 13% in 2020. Thanks to a higher discount rate for securities, due to the inclination of the economic supremacy of the US, to the detriment of China, and by the intensity of consumption, which will, however, lose steam throughout the year ”

Morgan Stanley: 4,400 points (-5%). “Our predictive models speak of solid earnings growth of between 8% and 10% for 2022 and 2023, respectively. With an increase in the GDP forecasts arising from our Leading Earnings Indicator. And even 4% of EPS despite tax increases in 2023, with a consensus of $ 245. However, the risks of a deterioration in corporate ratings will prevent it from being a successful exercise ”.

The Morgan Stanley Research on Global Strategy team, in a note to investors, consider that the most reliable alternatives, within mature markets, will be located in Europe and Japan. “After a lightning fast market cycle, investors will be forced to confront the fundamentals of their assets in fiscal 2020.” As well as to assess the unpredictable monetary and fiscal policies, which will dominate the strategic change, explains Andrew Sheets, Chief Cross-Asset Strategist of the Research Service of the investment bank. For whom emerging markets they appear first of the premiums of assets in phases of growth. With China directing operations, if it manages to contain the energy crunch and the wave of Covid infections.

In your specific diagnosis, you review five big issues that should be subjected to investment analysis. First, the persistent overvaluation of US assets, which are poised to overcome uncertainties such as cost pressures, value chains or tax changes. Secondly, the contrast of the stock market values ​​in Europe and Japan, at reasonable prices, with lower inflationary tensions and much more patient central banks, in whose markets, in addition, fiscal resources will continue to be supplied in addition to keeping their investment phase especially active. mergers and acquisitions, an investor hook who is joined by the lure of effervescent capital positions in favor of ESG criteria; especially in Europe, the area that has bet the most on sustainability. A third point to assess is the sector, where Morgan Stanley strategists give preference to health and biomedical research assets, financial assets and, of course, technological assets.

Dispersion is high across sectors: Stock selection will be key in 2022

The fourth element of judgment is a disturbing question: when and to what extent will the central banks of the industrialized powers respond to the threat of Covid? Since the monetary authorities of the United Kingdom or Canada have already entered the phase of increasing the price of money, while other spaces, such as the euro area, continue with their accommodative policy. An aspect that will distort the bond markets. And finally, Morgan Stanley’s list of investment recommendations focuses on close observation of the commodities market; in particular, that of oil and, more specifically, its adjustment between the supply of the OPEC cartel and the demand of a recovering economy. For the one who leaves the prediction of a barrel of crude that will touch, at most, 90 dollars in 2022.

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