BMO cuts 2022 year-end S&P 500 outlook, saying it underestimated inflation
rtsuggests
October 14, 2022
Business
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BMO Capital Markets chief investment strategist Brian Belski cut his 2022 year-end stock market forecast after saying he underestimated the impact inflation would have on markets. Belski said he lowered his S & P 500 price target to 4,300 from 4,800 — which would imply a rebound of roughly 17% in the fourth quarter from Thursday’s close. His earnings per share outlook was reduced to $230 from $245. “What has changed? The simple answer is the inflation environment, which we underestimated with our previous forecast. And with future CPI reports expected to remain hot, we decided we need to be more realistic in terms of 4Q performance expectations,” Belski wrote in a Thursday note. The September reading on the consumer price index released Thursday showed inflation rising more than anticipated. Markets initially buckled after the report, before making a historic bounce back as investors shook off concerns of higher interest rates — for a longer period of time — from the Federal Reserve. In spite of the reduced stock market outlook — which represents a roughly 10% loss for the calendar year — Belski wrote that he remains more optimistic than his peers, who expect more significant losses this year. The strategist said he expects that a fourth-quarter comeback shy of 20% in the S & P 500 is “not totally unreasonable,” especially given the historical precedent. Since 1930, roughly one-fifth of fourth quarters posted gains of 10% to 20%, according to the note. “[Although] we have tempered our enthusiasm, we truly believe that stocks can and should rebound from current levels,” Belski wrote. “The one caveat is that future trajectory is likely to follow more normalized patterns, a sharp departure from the pandemic stimulus-fueled gains of 2020-21 and the resulting YTD losses that unwound much of that excess,” he added. The strategist is overweight communication services, financials and health care, according to the note. He is underweight industrials.
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