The Bank of America (BofA) largely slashed its 2022 target for the S&P 500 to 3,600 from 4,500, representing a drop of 5% from the current level.
The bank said that the index could drop to about 3,000 to 3,200 before the end of this year, citing its forecast for a recession this year and expectations for a Federal Reserve movement in 2023.
The new year-end target is “the lowest on the Street,” said that bank, expecting a mild U.S. recession starting in the second half of 2022.
BofA expected Fed fund rate target at 3.25%-3.5% by year-end and will maintain at that level in the first half of 2023 before starting cutting rates in the second half of 2023.
“We found 11 indicators that have historically occurred before the market bottomed, one of which is the Fed cutting rates, which always happened before a bull market began,” BofA strategist Savita Subramanian wrote in a note Thursday.
“Our economists expect the Fed first cutting rates in 3Q23. Typically, more than 70% of these signposts have been triggered before the market bottomed. Currently, only 18% of these signposts are triggered,” the strategist added.
S&P 500 closed 0.30% lower on Thursday at 3,790.38 points, its fifth day of losing streak. The index has fallen 20% this year.
Additionally, the bank revised their outlook for the S&P 500’s earnings per share this year down to $218, down from $221. Meanwhile, 2023 EPS forecast was cut to $200 from $230.
