Market Outlook · April 29, 2022

Making Sense: April Highlights

Brent Ciliano

CFA | SVP, Chief Investment Officer

Phillip Neuhart

SVP, Director of Market and Economic Research

Six reasons stocks could be higher in the next 12 to 24 months

1 Geopolitical and military events

Looking at the last 29 major global conflicts and events post 1939, the S&P 500 has been positive on average 1, 3, and 12 months post event.

2 First Fed rate hike

The S&P 500 has been higher both 12 and 24 months post the first Fed rate hike of a new hiking cycle.

3 Yield curve inversion

S&P 500 returns have typically been positive in the 2 years following yield curve inversion.

4 Periods of high uncertainty

As a forward indicator, higher levels of uncertainty have yielded higher forward market returns, not lower.

5 Mid-term elections

The 12 months following mid-term elections, the US stock market has been positive 100% of occurrences since 1950, with and average return of more than 15.1%!

6 Third year of first term Presidency

Looking at data from 1981 through today, S&P returns during the 3rd year of a Presidential cycle for a newly elected President (that would be 2023) have seen average returns of 22.2%—almost 4 times higher than the average returns in years 1, 2 and 4.

Rising mortgage rates, skyrocketing home prices—when does it slow down?

  • Affordability has declined as mortgage rates shoot higher—rates are now around 5.4%. Home price appreciation is currently near 20% year over year. These two factors will eventually slow the housing market, according to Bloomberg, Strategas and
  • Housing starts are currently at their highest level since 2006 as homebuilders try to keep up with demand, according to Strategas.
  • In the existing home market, supply versus demand remains tighter than at any point during the last housing boom in the early 2000s, according to Bloomberg.
  • Nonresidential construction has seen a material increase after the big contraction early in the pandemic, according to Strategas.
  • Our base case: Price appreciation slows in coming quarters as supply and demand come back in line. This slowdown isn't likely immediate.
  • Less likely bear market case: Low affordability worsens through continued record price appreciation combined with rates moving even higher. Just as housing starts peak, demand deteriorates. Again, this isn't our base case.

Bottom line for markets

  • Wall Street consensus S&P 500 12-month forward price target is 5,265.87, or 19.9%, return from close on April 21, according to Bloomberg (as of April 22, 2022).
  • Our 2022 S&P 500 price target is 4,900, equating to equal to or more than 3% growth over 2021, but we expect a much more volatile year.
  • We believe the full market cycle can last through year-end 2023, or the first half of 2024, and potentially reach 5,200 to 5,500 greater (2024 EPS of $271 at 19 times to 20.5 times), but much can and will likely change along the way.

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