Will The Stock Market Turn Around – In late November and early December, Wall Street market strategists follow a time-honored holiday ritual: predicting where the S&P 500 will end up in the new year. Traditionally, these prognosticators are mainly a herd of bullish bulls, although fundamentals suggest caution, such as when stocks show clear signs of being overpriced against historical benchmarks. Although stocks look very expensive at the end of 2020, most banks are forecasting double-digit earnings for last year. The most optimistic is J.P. Morgan with 17%, followed by Goldman Sachs (14%) and UBS (11%). Bank of America and Citigroup bucked the mainstream by warning of bubbles and predicting minimal increases, but none of the Street stalwarts predicted an outright decline.
Of course, investors flooded even bluebird calls, sending the S & P 500 up 27.2% last year to close at 4,766. plunge that has put major companies into the area that, according to reliable measurements, makes it more expensive than at any time since 1998. technology bubble. 2000
Will The Stock Market Turn Around
Still, you’d think the bank would find a way to promote 2022 as a winner. I look forward to the usual practice of highlighting specific positives that promise to beat super high ratings and propel the S&P to another double-digit performance. Surprisingly, it doesn’t. At the end of the year, Wall Street issued a guide that was very modest and full of warnings. Note to Investors: If the ultimate stock hype factory goes down in large caps over the next 12 months, you may want to add a significant discount.
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Of course, even the most reliable market metrics won’t tell you much about how a stock will perform in less than a year. Phenomena like the meme craze and breakneck momentum have driven shares of electric vehicle makers and tech darlings to incredible highs making short-term forecasts unreliable. In the dotcom frenzy, the S&P looked very dangerous in mid-1997, but it rose for three more years before its inevitable collapse. This time, Wall Street sent us a warning wink. The bank’s weak praise for 2022, the reason they cited for the “weak” year ahead, is a continuing headwind that points to low yields over the next 12 months.
Compared to the 2021 crop, the S&P 500 bank target for this year is a story of highs and lows. Among the nine major players that provided year-end estimates for 2022, the most favorable forecast came from Credit Suisse. It predicts a close at 5100, a gain of 9.1% for 500, below the 2021 “peak” of 17% predicted by J.P. Morgan. Goldman came in second with 7%, followed by JP Morgan and RBC (both 6%), Deutsche Bank (4.9%) and Citi (2.8%). The biggest surprise was a flat and negative view. Barclays sees a rise of just 0.7%, while Bank of America forecasts a decline of 3.5%. The most bearish is Morgan Stanley, which expects the S&P to fall by 7.7% by New Year’s Eve in 2022.
The average of the nine targets is an increase of 2.8%. The S&P also provides a dividend yield of 1.3%. Add to the capital gain of 2.8%, and bigwig Wall Street predicts a total return of 4.1% for 2022. In November, the CPI raced to 6.8%, even if inflation slows to the forecast of 2.6% Fed, investors will admit. only minuscule “real” profit if the bank expert suddenly condemned that right.
But the forces driving Wall Street slightly bearish in 2022 aren’t going away, and they’re stronger than the bullies admit. These headwinds may not even materialize in the next 12 months, but they will have a big impact on prices in the coming year. The base looks bad to return to the future. Here are five reasons why stocks will do poorly in the long run.
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To determine how a stock has been extended, you need to examine not only how much the price has risen relative to earnings, but also whether the current large gains are sustainable. If not, the official price / earnings (P / E) some significantly understates how expensive the stock actually is.
At the end of the year, the S&P 500’s P/E based on earnings per share (EPS) through the third quarter of last year was 27.2. That’s the highest number since the tech bubble two decades ago, except for a few quarters in the 2000s when earnings collapsed into multiples. Wall Street enthusiasts say that the current P/E is based on
Profits remain in a reasonable range because profits will continue to rise. But they are wrong. In fact, corporate profits are at bubble highs that leave no room for expansion. Profit growth can’t save huge valuations right now.
In the fourth quarter of 2019, S&P 500 earnings reached an all-time high of $139.47. Then, after the return of COVID, the big companies became more profitable. Generous government spending to combat the crisis has given families trillions of dollars to spend on products and services that can stay at home, from computer equipment to renovating their ranch or colonial. Starting in the 2nd quarter of last year, it experienced a slump in earnings not seen in decades, jumping to $175 in the 3rd quarter of last year, surpassing the peak just 15 months ago by 25%. The problem: Operating margins—and therefore profits—are hitting a wall. They reached 13.2% in Q3 2021, compared to 10.6% in Q4 2019, when the S&P reached its pre-Covid peak. Currently, the ratio of sales to operating income is 40% higher than the average over the last 12 years.
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Today, rising labor costs are reducing this increase. Chris Brightman, CEO and Chief Investment Officer of Research Affiliates, oversees the strategy for $166 billion in mutual funds and ETFs.
That the era of rapidly growing profits is over. He predicted that EPS will likely go sideways, simply keeping up with inflation, for much of this decade.
The best metric for determining whether future results will be rich or poor is where you start. If everything is cheap, you’ll get a lot for every dollar you pay—a box full of rice porridge—and you’ll probably be fine. If your stock is making less money now, you’d better have a fast growing bottom line to make double-digit gains.
However, today’s profits are so big that they have no place to exit but the bottom or the side. A valuable metric shows that if we remove unstable EPS growth, we are left with lower “normalized” earnings. This makes the dollar you pay per share compared to the dollar you can rely on profit much higher than it seems. The measure is the cyclically adjusted price/earnings ratio (CAPE), developed by Yale economist and Nobel laureate Robert Shiller. CAPE removes the distortion of temporary peaks and troughs in earnings by averaging EPS over the past 10 years, adjusted for inflation. Indeed, the Shiller P/E ranks among the strongest predictors of what stocks will do over the next decade.
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Today, CAPE registers 40. It has only been this high in one period since 1877, for 21 months during the dotcom frenzy that took place from the beginning of 1998 to the end of 2000. During the next three years, the index fell by 43%; It took 13 years for the S&P to regain its level late in the period when the Shiller P/E exceeded 40.
The Fed’s latest promise to raise rates next year has Wall Street worried the most. In explaining their 2022 target, the bank admitted that the Fed’s move will push P/Es super high today. That’s a major factor in BofA’s Savita Subramanian’s forecast that the S&P will lose 3.5% this year. As volatile stocks compete with risk-free bonds, the less Treasuries yield, the more investors will pay their bigger rivals. Warren Buffett cited the drop in 10-year Treasury yields from more than 13% in 1984 to 4% in the mid-2000s as a major factor behind the multi-year bull market. In recent years, the Fed has provided even stronger tonics that have the party clamoring.
What matters most is not the “nominal” rate you see on your computer screen, but the “real” rate adjusted for inflation. As long as the price growth remains modest, the company can raise the price even; in fact, the price increase charged for cars, iPhones and appliances causes inflation. A real fall means bonds offer lower and lower premiums, or cushions, from inflation while the company remains. Bonds become less attractive and money flows into stocks, increasing P / E. The US has rarely experienced a period of such low real rates. From 2014 to the end of 2018, the inflation-adjusted yield of the 10-year treasury (long bond) ranged mainly between 0.5% and 1.0%. Since then it has gone down to a
1% This decline is the main driver in the rise of the official P/E from the low 20s to the current 27 and the CAPE from the mid 20s to the 40s.
Stock Market Predictions: 5 Reasons Stocks Will Go Down
The decline in real rates into the negative zone was the main force behind inflation multiples. The Fed’s commitment to raise rates will increase real yields and push up the P/E.
At its November meeting, the Fed signaled action
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