Market Outlook · May 26, 2022

Making Sense: May Highlights

Brent Ciliano

CFA | SVP, Chief Investment Officer

Phillip Neuhart

SVP, Director of Market and Economic Research


Are we going into a recession?

The US economy is slowing, and inflationary pressures remain high. Both factors are causing concerns about the potential for a recession. We believe the risks for one has risen, but we don't have a recession as our 1-year base case. If we're wrong, the good news is that both the consumer and operations are in the best shape they've been in for decades. This indicates to us that if a recession were to occur, it would likely be shorter and potentially less severe than previous recessions.

  • Bear case (40%): Recession
  • Base case (55%): Mid-cycle slowdown
  • Bull case (5%): Re-acceleration

Drawdowns: Recession versus non-recession

Both the length and magnitude of the major S&P 500 drawdowns since 1950 are about the same with and without a recession. But focusing on the percentage recovery of previous highs one year following the bottom, most observations met or exceeded 100% of their initial peak.

Bottom line for markets

  • Wall Street consensus S&P 500 12-month forward price target is 5,265.87, or 31.5% return from close on May 19 close of 3,900.79.
  • Our revised 2022 S&P 500 price target is 4,600, equating to around 3% growth over 2021. This includes 8 to 10% earnings growth and 10 to 15% 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.
  • What should you do? Have a financial plan, truly assess your risk tolerance and work with your First Citizens partner to make sure you're staying on track.

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