Wall Street's Average Expected S&P 500 Index Increase Rate for This Year is 4.5%

S&P 500 Index to Reach 5000 with 5% Increase... BOM Capital Forecasts 5300, Morgan Stanley Predicts 4400

[Asia Economy Reporter Byunghee Park] Last year, the New York Stock Exchange's S&P 500 index broke its closing price record 70 times, accounting for more than a quarter of all trading days. In the final trading week, it surpassed the 4800 mark, reaching an intraday high of 4808.93. The annual growth rate was 26.89%, nearly three times the average annual growth rate of 8.4% since 1957.

Following the COVID-19 pandemic, central banks worldwide supplied massive liquidity, and the global economy recovered from the COVID-19 recession faster than expected, channeling large-scale liquidity into the stock market.

However, concerns about overheating are growing due to inflation risks caused by supply chain disruptions and the continuous mutations of the COVID-19 virus into Delta and Omicron variants. According to FactSet Research, the price-to-earnings ratio (PER) of the S&P 500 index last week was about 21 times, higher than the five-year average of just under 19 times.

Although the S&P 500 index is only about 5% away from the unprecedented 5000 level, according to the Wall Street Journal (WSJ), 13 banks and financial services companies forecast the year-end closing price of the S&P 500 index this year to be only 4940. This implies an expected annual growth rate of 4.5%.

BMO Capital Markets predicted the highest at 5300, while Morgan Stanley forecasted 4400. Morgan Stanley stated that the PER is expected to decline this year as interest rates rise.

Interest rate hikes are the biggest challenge the stock market will face this year. The U.S. central bank, the Federal Reserve (Fed), plans to end its quantitative easing policy in March and is expected to raise the benchmark interest rate two to three times within the year.

The slowdown in corporate earnings growth is also a significant variable. According to FactSet, analysts expect the net income of S&P 500 companies to increase by 9.2% next year, a sharp decline compared to last year's expected net income growth rate of 45%.

Especially since the leading stocks that drove last year's index rise have high PER levels, the slowdown in net income growth is a burdensome factor. Last week, Tesla's stock traded at about 123 times the expected earnings over the next 12 months, and Nvidia traded at about 58 times.

Tesla led the S&P 500 index's rise last year with a 49.76% increase. Microsoft and Apple, competing for the first and second largest market capitalizations, also rose 33.82%. Microsoft, Nvidia, Apple, Alphabet, and Tesla accounted for about one-third of last year's benchmark increase.

Joseph Amato, President and Chief Investment Officer (CIO) of asset management firm Nuveen Berman, said, "The stock market situation is not normal," adding, "In 2022, we will not see the same stock market rise as in 2021."

This content was produced with the assistance of AI translation services.