While Wall Street strategists are getting gloomier about the prospects for positive stock returns in 2022, one with the highest forecast for the S&P 500 at the end of the year is holding fast despite the fact that the benchmark index has fallen more than 18% since its record high on January 3 and is approaching a bear market.
The silver lining for John Stoltzfus, chief investment officer at Oppenheimer, is that historic drops tend to be followed by historic rallies. Stoltzfus told Yahoo Finance Live that he is sticking to his year-end forecast of 5,330 for the S&P 500, a more than 35% rally from current levels.
Stoltzfus pointed out that the index fell by 57% during the financial crisis between October 2008 and March 2009, followed by a 64% rally through the end of the year.
When we look back at that, we think that stocks could really rally, so we ll wait a bit before we start addressing any thoughts of changing our target, he said.
Stoltzfus is encouraged by two fundamental factors.
Earnings growth continued to be healthy, with increases in nine out of 10 sectors rising 10% in the first quarter.
He has more confidence than some of his peers that the Federal Reserve will respond to a softening economy and falling equity markets.
Anytime the Fed is going to add liquidity to the system or take liquidity out, participants in the market who are detractors of the Federal Reserve will say, The Fed is going to fail, the Fed won't pivot if it gets it wrong, Stoltzfus said. As time comes to pass, the Fed takes the right action, it makes corrective measures, like the pivot in 2018, like the pivot we saw at the end of last year. Stoltzfus's target may be the highest on the Street, but he is not alone in saying that stocks have fallen too far. Goldman Sachs Chief U.S. Equity Strategist David Kostin wrote in a note that stocks have all but priced in a recession, an outcome he says is not inevitable. The probability of an economic downturn over the next two years is 35%, according to Kostin.
Binky Chadha, chief U.S. equity and global strategist at Deutsche Bank Securities, thinks the current sell-off has more to go and has cut his price target on the S&P 500 to 4,750 from 5,250. Chadha stated that if a recession is not imminent and he doesn't believe it is, stocks can recover by the end of the year.
Stoltzfus is choosing to look on the bright side as the retailers troubles seem to be linked to a shift in consumer trends and inventory management rather than a wholesale pullback, as for some of the negative signals around consumer spending sent by the likes of Walmart and Target this week.
Americans are proving to be remarkably resilient when it comes to shopping, as they usually do, he said. In my experience, the U.S. consumer will spend like a drunken sailor in good times and when times get bad they have a vacuum cleaner, they vacuum the coins behind the sofa and behind the back seat of the car, and then they shop at cheaper stores as a rule. Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9 am -- 11 am ET.