Market Outlook · June 24, 2022

Making Sense: June Highlights

Brent Ciliano

CFA | SVP, Chief Investment Officer

Phillip Neuhart

SVP, Director of Market and Economic Research

Are we going into a recession?

The risk of a recession has risen, but we don't have a recession as our 1-year base case. Since May, we've increased the probability of a recession from 40% to 45%. Our base remains that we'll have a mid-cycle slowdown, but not quite to recessionary levels. Unfortunately, neither a recession nor a mid-cycle slowdown are easy periods for investors.

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

However, if we're wrong and 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.

Timing markets can prove costly

As we often say, being a successful investor isn't about timing markets—it's about time in the market. From 1995 to April 2022, if investors missed the best 5 days in markets, their portfolio decreased by more than 20%. Additionally, almost half of the S&P 500 Index's strongest days occurred during a bear market—when no one would want to be invested. Another 28% of the market's best days took place in the first 2 months of a bull market—before it was clear that a bull market had even begun.

Bottom line for markets

  • Wall Street consensus S&P 500 12-month forward price target is 5,022.29, or 37% return from close on June 16 close of 3,666.77.
  • Our revised 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.
  • We believe the S&P 500 can potentially reach 5,000 or higher (2024 EPS of $271 at around 18.5x) by the end of 2023 or early 2024 as inflationary pressures moderate and Fed interest rate hiking cycle slows.

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