- 2023 could be a tough year for the economy after this year’s difficult stretch for stocks and bonds
- The forward price-to-earnings ratio on the S&P 500 is considered on the high side by most strategists
- A dismal outlook from the Wall Street pros could be a bullish contrarian indicator for investors
You can count on so-called “sellside” research to be upbeat about future stock market returns. It’s common to hear from the smartest folks on Wall Street predict the standard 8% to 10% rise in equities looking ahead a year. This time is different. Bloomberg recently reported that for the first time since at least 1999, the consensus strategist forecast shows a negative return for the S&P 500 for the coming year.
Driving the gloomy outlook is likely a price-to-earnings multiple that is not all that cheap at about 18 times 2023 expected per-share profits on the S&P 500. To be clear, small caps still look attractively valued at under 12 times next year’s earnings. After a more than 15% climb off the October lows, though, S&P 500 valuations might be a bit stretched in the minds of sellside analysts considering a possible economic slowdown in 2023. The good news is that the pros are often wrong, so their bearish collective take could be a bullish contrarian signal for investors.
Source: Bloomberg