Wall Street Experts Split on Stock Market Trajectory

The sign for Wall Street with U.S. flags outside the New York Stock Exchange in New York City on June 16, 2022. (Yuki Iwamura/AFP via Getty Images)

With the world grappling with inflation, political tensions stemming from the Russia–Ukraine war, and worries about an impending recession, stock market experts are now split on where Wall Street is heading for the rest of 2022 after declining for the first half of the year.

Citigroup Inc. is in the camp that is expecting a positive rally in U.S. stocks for the remainder of the year. “Risk off-positioning” and “second-half earnings resilience” will support the stock market to move higher, Citi strategists said in a recent note, according to Bloomberg.

Strategists expect the S&P 500 to close at 4,200 for the year, representing an over 8.78 percent increase from the 3,861 level as of 1:38 p.m. Eastern time on July 11. For the full year, Citi is expecting a drop of 12 percent.

“The inflation surge beginning about this time a year ago has mostly been an incremental positive for earnings growth,” they wrote. “We don’t expect a new structural paradigm at this point, but do think that current earnings tailwinds can continue in the immediate term.”

The U.S. economy is expected to remain resilient for the second half of the year. A recession risk is only likely next year, the bank added.

JPMorgan Chase & Co. analyst Marko Kolanovic is expecting annualized inflation to dip in the second half of the year, ensuring that an economic downturn is avoided. As a consequence, the U.S. stock market is forecast to be strong for the remainder of 2022.

“It is not that we think that the world and economies are in great shape, but just that an average investor expects an economic disaster. And if that does not materialize, risky asset classes could recover most of their losses from the first half,” Kolanovic said in a note, according to Business Insider India.

A Negative View

Morgan Stanley’s Michael J. Wilson foresees U.S. earnings facing another “massive headwind” from the surging U.S. dollar, according to Bloomberg. He believes the recent rally in stocks will fizzle out, with the S&P 500 falling to the range of 3,400–3,500 in case of an economic soft landing, and to even hit 3,000 if a recession hits.

According to Bloomberg Intelligence Data, analysts have raised their net profit margin estimates for S&P 500 companies since the beginning of 2022. Some experts believe there is a misalignment between rosy earnings forecasts and softer U.S. economic data.

In a June 27 note, Goldman Sachs Group Inc. strategists warned that equity markets are underpricing the impact of a potential recession.

“While rotations within the equity market have signaled expectations of slowing growth, index valuation does not appear to be providing a buffer for the uncertainty around the path of future earnings,” the June 27 note said.

The S&P 500 fell 20.6 percent during the first six months of 2022, wiping out about $8.5 trillion in market value during the period.

This is the steepest fall in the first half of the year since 1970.