Bear Case Is Now Base Case for Strategist Cutting S&P 500 Forecast

(Bloomberg) — Back in May when Michael Kantrowitz held a webinar with clients, he flagged 3,400 as a worst-case scenario for the S&P 500.

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Fast forward to today and a slew of disappointing economic data later, the strategist at Piper Sandler & Co. is making that bear case the official forecast, slashing his year-end target for the equity benchmark from 4,000. The new projection represents an 11% drop from Tuesday’s close.

“We are more confident now that it is our base case,” Kantrowitz said in an interview. With earnings expectations likely souring along with a weakening economy, a bottom won’t form for this bear market until later next year, he added.

Right now, analyst estimates point to profits of $246 a share in 2023 for companies in the S&P 500, according to data compiled by Bloomberg Intelligence. Kantrowitz expects that number to slide to $230 by December.

Kantrowitz is the latest Wall Street strategist rushing to revise market outlooks as the six-month stock rout has shown no signs of abating and recession talk is mounting. Among professional forecasters tracked by Bloomberg, he’s one of the first to predict lower share prices till year’s end.

“The biggest risk to the call would be the timing of the Fed being done, which we think will create a brief relief rally,” he said, referring to some speculation that the Federal Reserve might end the tightening cycle earlier than previously thought after front-loading jumbo rate hikes. “It won’t last as leading indicators of the economy will continue to drop well into 2023.”

Bond traders raised wagers that the central bank could boost rates by a full percentage point this month after a hotter-than-expected inflation. With short-dated Treasury yields spiking, that drove the spread between 2-year and 10-year bonds deeper into an inversion, a widely watched signal for a potential recession.