Wall Street analysts are forecasting the S&P 500 to trade at 4,987.28 over the next 12 months, up 30% from its June 23 close.
That’s according to a recent study by FactSet, which tracks analyst earnings estimates and forecasts for S&P 500 companies.
The bullish outlook for the benchmark stock index comes at a time of challenging macroeconomic conditions, with record high inflation, rising interest rates and a strong dollar, boding ill for S&P 500 performance. This has prompted Wall Street analysts to cut earnings estimates in line with the overall market decline.
“As the S&P 500 has fallen in price since the beginning of the year, industry analysts have also lowered their price targets for S&P 500 companies in recent months,” said John Butters, FactSet’s vice president and senior earnings analyst. , “Since hitting 5,344.26 on Jan 20, 2022, the bottom-up price target for the S&P 500 is down 7% to 4,987.28 on June 23, 2022.”
It’s the first time since August 2021 that analysts have lowered estimates for the S&P 500 below 500. The bottom-up estimate is the sum of the average price targets (based on company-level estimates provided by industry analysts) for all companies. benchmark index.
But as S&P shares fall in line with those estimates, markets have discounted the bad news. This allows them to recover over the next 12 months.
“However, it should be noted that the bottom-up price target of 4,987.28 on June 23 was still 31.4% above the close of 3,795.73 on the same day,” Butters said. “Thus, despite the recent bottom-up target price reduction, industry analysts still believe the index will appreciate by more than 30% over the next 12 months.”
Which areas offer the best potential for value growth at these levels? Sectors that were hit the most during the recent market sell-off include communications services (+42.6%), consumer discretionary (+40.2%) and information technology (+36.5%).
In terms of individual stocks, Caesars Entertainment, Dish Network Corporation, Bath & Body Works, Carnival Corporation, Penn National Gaming, Inc. and Royal Caribbean Group top the list of companies with the highest upside potential.
How accurately do analysts use bottom-up earnings estimates to make S&P 500 predictions? Pretty accurate and on the conservative side, according to Butters.
“Over the past five years, industry analysts have underestimated the price of the index by an average of 2.1% (using month-end values),” he said. “Over the past 10 years, industry analysts have underestimated the price of the index by an average of 0.2% (using month-end values).”
However, as the Wall Street disclaimer states, past performance is never a guarantee of future performance. Therefore, investors should keep an eye on the macroeconomic challenges that could push the market in the wrong direction.
S&P 500 Posts Up 30% Over Next 12 Months First appeared in the International Business Times.
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