Wall Street’s most bearish 2022 forecast was bullish. It always was.

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Friday, May 13, 2022

Today's newsletter is by Sam Ro, the author of TKer.co. Follow him on Twitter at @SamRo.

Heading into 2022, Morgan Stanley stood out on Wall Street thanks to its prediction stocks would fall in the coming year.

In a research note to clients, written on November 14, 2021, the firm predicted the S&P 500 would slide to 4,400 by the end of 2022. At the time, this price target implied a 6% decline for the S&P. It was the most bearish forecast among the prominent Wall Street firms.

The following Friday, I spoke with Julie Hyman and Brian Sozzi on Yahoo Finance Live. Here’s what I said:

“...down 6% in a given year is arguably bullish. Because if you look at the market history, in an average year, the S&P 500 will see a drawdown – a max drawdown – of about 14%. And that's even in bull markets. So, if we have a bull market where we have a year where the market only goes down 6% from the top to the bottom, that's actually an incredibly positive thing to be saying...”

Markets have a long history of short-term bouts of volatility. So, for those well-versed in market history, a 6% decline always looked relatively benign.

This year, I think most investors would be thrilled to be down only 6%. The S&P peaked at 4,818.62 on January 4, then tumbled 20% as low as 3,858.87 on Thursday. The S&P will have to climb 12% from Thursday’s close to reach Morgan Stanley’s 4,400 year end target.

To be fair, most forecasters warned that 2022 was likely to be bumpier than 2021. Based on the volume of revised forecasts in recent weeks, it’s clear almost no one saw this year’s sell-off coming.

Indeed, Goldman Sachs, JPMorgan, UBS, RBC, Barclays, Bank of America, Credit Suisse, and Jefferies all slashed their forecasts amid the market rout.

The point of all this is not to say, “I told you so.” Rather, it’s a reminder that no one should be surprised to see double-digit losses in the short run in their equity portfolios.

Accepting that the market can be volatile is what investing is all about. It’s the price investors pay for long-term riches. Market history can be very helpful in setting expectations. So, read up. You’re less likely to make a financial mistake if you understand how bad things can get in the short term.

What to Watch Today

Economy

• 8:30 a.m. ET: Import Price Index, month-over-month, April (0.6% expected, 2.6% in March)

• 8:30 a.m. ET: Import Price Index, year-over-year, April (12.2% expected, 12.5% in March)

• 8:30 a.m. ET: Export Price Index, month-over-month, April (0.7% expected, 4.5% in March)

• 8:30 a.m. ET: Export Price Index, year-over-year, April (18.8% in March)

• 10:00 a.m. ET: University of Michigan sentiment, May preliminary (64.0 expected, 65.2 in April)

Earnings

• No notable reports scheduled for release

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Inflation decline to be delayed due to high corporate pricing power: ING report

 

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