Market Outlook · August 01, 2022

Making Sense: July Highlights

Brent Ciliano

CFA | SVP, Chief Investment Officer

Phillip Neuhart

SVP, Director of Market and Economic Research

Recession risk has risen—here's what to expect

The risk of a recession has risen, and it's now a coin flip as to whether we see a recession in the next 12 months. Since May, we've increased the probability of a recession from 45% to 50%. Unfortunately, neither a recession nor mid-cycle slowdown are easy periods for investors.

  • Bear case (50%): Recession
  • Base case (45%): Mid-cycle slowdown
  • Bull case (5%): Re-acceleration

If a recession does occur, there's a silver lining: Consumers and corporations are both strong. We believe a recession would be cyclical in nature—likely a shallower and shorter duration drawdown.

Highest percentage of 1% (or more) moves since 1982

So far this year, 90% of S&P 500 trading days have exceeded a 1% gain or loss, and we think such volatility could continue. That said, we still believe a lot of economic uncertainty has already been priced into both fixed-income and equity markets.

Bottom line for markets

  • Wall Street consensus S&P 500 12-month forward price target is 4,785.65, or 21% return from close on July 22 close of 3,961.63.
  • Our 2022 S&P 500 price target is 4,350, equating to around 8.5% growth over 2021. This includes 8% to 10% earnings growth and 15% to 20% multiple contraction.

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