Wall Street strategists are forecasting something they have never forecast before – a year of stock market declines.
Almost every year, the consensus strategist forecast is for stocks to gain around 10 per cent over the coming year. Not once since Bloomberg began tracking the data in 1999 has Wall Street predicted negative returns. Strategists were bullish during the vicious 2000-2002 bear market and even in 2008, when the S&P 500 sank 38 per cent.
However, the current mood is more sombre, with strategists forecasting a very slight fall over the next year. Indeed, three major Wall Street banks – Bank of America, Morgan Stanley and Deutsche Bank – warn the S&P 500 will fall over 20 per cent at some stage in 2023, before recovering as the year progresses.
Additionally, the variability in forecasts is much wider than usual. The most optimistic forecast envisages a 10 per cent gain, while the most pessimistic predicts a 17 per cent fall – the widest gap since 2009. This same variability is evident in banks’ individual forecasts. For example, Bank of America’s bull case is the S&P 500 ends 2023 at 4,600, but its bear case sees it falling to 3,000.
Now, such forecasts are almost invariably wrong, and strategists will privately admit year-end forecasting is a trivial game they’re obliged to play. More than anything, the 2023 forecasts illustrate today’s uncertain mood.
