2022 stock market outlook: The top strategists at Goldman Sachs, JPMorgan, and more share their predictions for the S&P 500 this year and how you should invest your money (2024)

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1. Bank of Montreal: 5,300

S&P 500 forecast: 5,300 (14% gain)

Commentary:

"We believe North American stocks will post their fourth consecutive year of positive returns in 2022 — albeit less positive — but that is very OK and very normal. With respect to US stocks, our models show that the S&P 500 Index will attain a price objective of 5,300 on earning of $245."

"To clarify even further, we believe this ''less positive' trend does not apply only to price performance — but also to less positive earnings growth and diminished valuations — not to mention, a slowing trajectory of rising interest rates — and, yes — the strong possibility of decelerating inflation — especially during the second half of 2022. Simply stated, double-digit earnings growth, still excessively low interest rates, declining valuations, and eventually subdued inflation are a very good backdrop for equities."

Investment recommendations:

"In terms of positioning, over the next 12-18 months, we are advising clients to Overweight the following in their equity portfolios: Financials, Discretionary, Industrials, and Materials, while equal weighting both growth and value, let alone small, mid and large cap stocks. However, clients are encouraged to differentiate these positions by increasing their focus on quality, growth-at-a-reasonable-price, and dividend growth across all size, styles, and sectors."

Source: Bank of Montreal

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2. Wells Fargo: 5,100-5,300

S&P 500 forecast: 5,100-5,300 (10%-14% gain)

Commentary:

"Despite the Fed tapering its bond buying program in 2022, we expect overall monetary policy to support equity prices. Fiscal policy should be less of a tailwind and midterm elections may pose market sentiment concerns. We estimate that earnings per share (EPS) for the S&P 500 Index will increase from $210 in 2021 to $235 in 2022. Even as price/earnings (P/E) ratios declined in 2021, a surge in earnings drove strong returns. In 2022, we expect earnings growth to moderate and P/E multiples to be range-bound. Our 2022 year-end median price target for the S&P 500 Index is 5,200."

Investment recommendations:

"We favor U.S. large-cap and mid-cap equities over international equities, and cyclical and growth sectors over defensive sectors."

"Favored equity sectors: Communication Services, Financials, Industrials, Information Technology."

Source: Wells Fargo

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3. Credit Suisse: 5,200

S&P 500 forecast: 5,200 (12% gain)

Commentary:

"We are raising our 2022 S&P 500 price target to 5,200 from 5,000. This constructive outlook is based on robust projections for economic growth in both real and nominal terms, further margin upside in cyclical groups, a pickup in buybacks and a favorable discount rate despite Fed tightening."

Investment recommendations:

"Robust GDP and inflation, relative valuations, and earnings momentum should favor our recommendation to Overweight Cyclicals (Energy, Materials, Industrials and Discretionary Ex- Internet Retail), and Market Weight TECH+ (Technology, Internet Service and Internet Retail). We would reevaluate this positioning should the yield curve flatten further, nominal growth fade, or earnings trends reverse. We are downgrading Financials and Health Care to Underweight, on weaker growth prospects in 2022."

Source: Credit Suisse

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4. Goldman Sachs: 5,100

S&P 500 forecast: 5,100 (10% gain)

Commentary:

"We forecast the S&P 500 index will climb by 9% to 5,100 at year-end 2022, reflecting a prospective total return of 10% including dividends. Profit growth has accounted for the entire S&P 500 return in 2021 and will continue to drive gains in 2022. S&P 500 EPS will grow by 8% to $226 in 2022 and by 4% to $236 in 2023. Our EPS estimate is 2% above 2022 bottom-up consensus. Companies have consistently expanded profit margins despite input cost pressures and supply chain challenges. We expect profit margins will rise by another 40 bp to 12.6% in 2022 before declining by 20 bp in 2023 due to corporate tax reform."

Investment recommendations:

"Investment Strategies: (1) Own virus- and inflation-sensitive cyclicals; (2) Avoid high labor cost firms; (3) Buy growth stocks with high margins vs. low margin or unprofitable growth stocks. Overweight Technology, Financials, and Health Care."

Source: Goldman Sachs

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5. JPMorgan: 5,050

S&P 500 forecast: 5,050 (9% gain)

Commentary:

"Our 2022 price target for the S&P 500 is 5,050. This represents a smaller percentage appreciation compared to our 2021 forecast; however, we do think international equities, emerging markets and cyclical market segments will significantly outperform and deliver 2-3 times higher returns. The reason for this is our expectation for increasing interest rates and marginally tighter monetary policy that should be a headwind for high-multiple markets such as the Nasdaq."

"Next year, we expect S&P 500 to reach 5,050 on continued robust earnings growth as labor market recovery continues, consumers remain flush with cash, supply chain issues ease, and inventory cycle accelerates off of historic lows. Most of the equity upside should be realized between now and 1H22 when monetary and fiscal policy tailwinds will be strongest followed by sideways action in 2H22 (the Fed liftoff could drive some de-risking and intra-cycle correction)."

Investment recommendations:

"Regionally we expect some convergence in multiples across regions with outperformance led by Europe within DM and China within EM."

"On Styles, Sectors and Themes we retain a pro-cyclical tilt, especially in light of recent pullback, with preference for reflation-sensitive sectors—Energy and Financials (over Staples and Utilities), Consumer Services (over Consumer Goods), Healthcare (over other defensive sectors), and Small-caps (over Large-caps)."

"At current prices, Travel, Leisure & Experiences theme has an extremely attractive risk-reward. While bottlenecks in the goods producing sectors are showing signs of some easing, labor supply remains tight and can lead to non- transitory inflation pressures. Consequently, we include a global short basket of stocks that have high labor intensity and weaker pricing power."

Source: JPMorgan

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6. RBC: 5,050

S&P 500 forecast: 5,050 (9% gain)

Commentary:

"Overall, our new 5,050 is calling for a 7.3% gain beyond the early November high in the S&P 500. While our target is quantitatively driven, that still sounds like the kind of story we want to tell for how 2022 is likely to unfold – a year of solid gains but more moderate returns than we've seen in 2021."

"Supply chains and inflation are clearly challenges to margins, and we worry about volatility in the stock market in December and January during forecast season, but as long as conditions look likely to improve in the back half of 2022, as many investors expect, we don't think these issues derail the year particularly since some glimmers of hope on supply chain improvement have already been seen."

"Above-trend GDP growth should set the stage for moderately higher U.S. earnings growth and stock prices in 2022 ... The S&P 500 consensus earnings forecast of $221 per share for 2022 seems achievable and has potential for upside, in our view, so long as new COVID-19 variants do not seriously disrupt economic momentum."

Investment recommendations:

Source: RBC

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7. Jefferies: 5,000

S&P 500 forecast: 5,000 (8% gain)

Commentary:

"Growth – Real and Nominal – is not likely to be a problem in 2022 as the US consumer, corporate, government, and possibly the banks unleash their spending. But base effects work against earnings and high valuations meaning that market multiples matter. We expect the S&P 500 to advance to 5,000 based on 15% y-y (JEF EPS integer $233)."

Investment recommendations:

"We remain Modestly Bullish on US equities within our global asset allocation. We have lifted our weighting on Healthcare to Bullish to reflect the better risk and returns. We hold a non-consensus view on the outlook for Real Estate (Bullish). Our favorite uncorrelated themes include a Capex Binge, Broadband Spending, Beneficiaries of Higher Agricultural Spending, The European Reflation Trade Capital Repatriation and Sticky Recruitment Problems."

Source: Jefferies

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8. UBS: 4,850

S&P 500 forecast: 4,850 (4% gain)

Commentary:

"We see S&P 500 earnings coming in 9-10% above consensus till Q2, which is when we expect the index to reach a peak at 5,000. Subsequent earnings downgrades and higher real rates should make for a derating towards 4,850 by end-22. With few liquidity headwinds Europe should outperform US over the next 3-6 months, but fall behind as revisions turn."

"We target 4,650 for the S&P 500 at end '21 and 4,850 for end '22 with another meaningful market high in Q2 next year before another round of consolidation. The S&P 500 rally has further to run in our view driven by: 1) a 10%+ rise in forward earnings over the next 6mo, 2) still strong growth activity, 3) a continued fall in COVID cases, and 4) a decline in the multiple as real yields rise that is more than offset by higher earnings."

Investment recommendations:

"Energy, Financials and parts of TMT over defensives and Materials. As the expansion takes hold, our frameworks support staying long parts of growth and value while maintaining underweights in defensives. We remain overweight Communication Services and Tech on strong growth+momentum and pricing power as well as historically strong returns at this stage of the cycle, preferring Media, Interactive Media & Services, Tech Hardware & Equipment and Application Software. We stay OW Financials and Energy as asymmetries to a "growth stays high" and rising rates scenario points to a tactical catch up that has further to run."

"We stay UW Materials given downside risks to a slowing durable goods and property investment backdrop (China, commercial). Industrials and Consumer Discretionary are a neutral+, as pockets of those sectors look attractive such as Autos, Apparel, Machinery and Airlines. We remain tactically overweight small caps as relative valuations (vs large) fell to historical lows and earnings momentum remains strong."

Source: UBS

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9. Bank of America: 4,600

S&P 500 forecast: 4,600 (1% loss)

Commentary:

"We forecast the S&P 500 at 4,600 by year-end 2022. We forecast S&P 500 EPS growth of 6.5%, a 30bp hit to margins from here but strong dividend growth of 13% in 2022. Drivers for our outlook: a higher discount rate, US GDP primacy vs. China, rising capex but slowing consumption, the end of the 'equity shrinkage' bull case."

Investment recommendations:

"Overweight Energy, Healthcare, Financials; avoid Consumer."

"Energy and Financials offer inflation-protected yield. Healthcare offers Growth/Yield at a Reasonable Price. We are underweight Communication Services (long duration/crowded) and Staples & Discretionary: slowing consumption, labor intensity, oil tax impacting low price point sales, and shift to services spend (which benefits small caps more)."

Source: Bank of America

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10. Morgan Stanley: 4,400

S&P 500 forecast: 4,400 (5% loss)

Commentary:

"For 2022 and 2023, we model solid earnings growth of 10% and 8%, respectively, based on our economists' strong GDP forecasts and our proprietary Leading Earnings Indicator. Even with a 4% hit to EPS from higher taxes in 2023, we are in line with consensus at $245. However, we think 2022 will finally bring the multiple compression we incorrectly forecasted for 2H 2021. Our 12-month target P/E of 18x is 15% below current levels but in line with the 5-year average and the top quintile for the past 30 years. The risk of de-rating has been deferred, not avoided, and makes our 12-month S&P 500 Bear/Base/Bull targets of 3,900/4,400/5,000 unexciting."

Investment recommendations:

"Sectors and style preferences will likely be more volatile. While our primary theme for 2022 is to focus more on stocks than sectors and styles, one can't ignore them. We go into year-end favoring earnings stability and undemanding valuation given our view for a tougher operating environment and higher long- end rates. This puts us Overweight Healthcare, Real Estate, and Financials and more constructive within sectors on Consumer/Business Services and reasonably priced Software. With our view for payback in demand from this year's overconsumption, we are Underweight Consumer Discretionary (particularly Goods-oriented, which is the majority of the sector) and Tech Hardware. We favor Large over Small Caps and have a slight bias for Value over Growth in the near term. This bias is likely to flip flop in 2022 (like in 2021) as macro uncertainty reigns."

Source: Morgan Stanley