Wall Street strategists are throwing in the towel and cutting their S&P 500 price targets. That's often a good sign for the stock market.
Fundstrat has remained resistant to cutting its year-end price target of 5,100, which represents potential upside of 39% from current levels.
Bryan R Smith/Reuters
- More and more Wall Street strategists are throwing in the towel and cutting their year-end price target.
- JPMorgan, Oppenheimer, and BMO are the latest Wall Street bulls to lower their expectations.
- Wall Street strategists getting less bullish on the stock market has served as a contrarian buy signal in the past.
It's been a tough year for Wall Street forecasters, as a sharp sell-off amid aggressive rate hikes by the Federal Reserve de-railed most predictions for where the S&P 500 would end the year.
At the start of 2022, the average Wall Street estimate for the S&P 500's year-end price target was 4,950, according to data from Bloomberg, with the highest estimate being 5,330 and the lowest estimate being 4,400.
But as the stock market trended lower throughout the year, most Wall Street strategists cut their price targets in lockstep. Bank of America, Goldman Sachs, Morgan Stanley and other firms have not been shy to change their view and temper expectations.
Today, the average year-end S&P 500 price target stands at 4,054, with a high of 5,100 and a low of 3,200.
But throughout the ongoing stock market decline and amid worrying headlines on everything from geopolitics to monetary policy, a few Wall Street bulls resisted the urge to cut estimates and remained steadfast in their view that the stock market could still stage a year-end rally.
Now that's starting to change, with many bullish holdouts finally cutting their S&P 500 price targets. In the past month, BMO's Brian Belski, Oppenheimer's John Stoltzfus, and JPMorgan' Marko Kolanovic all lowered expectations by either cutting their price target or extending their forecast window into 2023.
A combination of poor sentiment, persistent inflation, and uncertainty surrounding corporate earnings contributed to the forecast revisions.
The capitulation of some of Wall Street's most bullish forecasters is actually a contrarian signal that suggests the market may be closer to a bottom.
Bank of America's Savita Subramanian tracks a sell-side equity indicator that is used just for this reason, to measure the relative bullishness of Wall Street strategists, as forward stock market returns have historically been high when Wall Street turned less bullish on the future.
But there is still one holdout, however. Fundstrat's Tom Lee has remained resistant to cutting his year-end price target of 5,100, which represents potential upside of 39% from current levels. Lee has contended that a year-end rally remains on the table given the favorable seasonality, the overly bearish sentiment among investors, and the potential that inflation is starting to rollover.
Lee's prediction looks increasingly unlikely as the year draws to a close, but perhaps he himself can make a more compelling case for stocks by throwing in the towel like everyone else.