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The biggest stock bull on Wall Street has finally become less bullish about stocks

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The date is July 8, 2022.

Myles Udland, who is the senior markets editor at Editorials99 Finance, wrote the newsletter for today. Follow him on LinkedIn and Twitter at @MylesUdland.

One of Wall Street’s biggest bulls has finally lowered their expectations for the rest of this year.

In a note to clients sent out on Thursday, John Stoltzfus, the chief investment strategist at Oppenheimer Asset Management, cut his price target for the S&P 500 from 5,330 to 4,800 for the end of the year. On Thursday, the benchmark index ended the day at 3,902.

Before this cut, Stoltzfus had the highest price target for the end of the year of all the Wall Street strategists that Editorials99 Finance kept track of. Even as recently as June 21, Stoltzfus had repeated this call.

This outlook still suggests that the benchmark index will rise by almost 25 percent by the end of this year. It also suggests that the index will rise slightly in 2022, ending 0.7 percent higher than where stocks were at the end of 2021.

“Russia’s invasion of Ukraine and China’s lockdown of Shanghai (a city with more than 25 million people) and other cities in China have been catalysts in the first half of this year. These events, along with higher and more stable inflation, have created enough uncertainty and bad feelings to hurt the performance of the stock market more than we had expected,” Stoltzfus said.

Stoltzfus, who was always hopeful about the U.S. economy and stock market, added that “Our long-term view of the US economy and stock market is still very positive. We think that the main parts of the US economy are still strong. Consumer spending, business investment, and government spending should all keep the US economy growing.”

Stoltzfus’ call comes as investors have recently paid closer attention to the spread between earnings expectations and the signals from economic data. As we pointed out in Wednesday’s Morning Brief, analysts haven’t changed much about how much they think S&P 500 companies will make.

FactSet data shows that bottom-up earnings estimates dropped by only 1.1% in the second quarter. During a given quarter, earnings estimates have gone down by an average of 4.7% over the last 15 years.

Oppenheimer is also not lowering its earnings forecast, and Stoltzfus has said again that he thinks S&P 500 companies will earn $230 per share this year.

Earnings predictions for the S&P 500 haven’t changed much this year. During the second quarter, when the S&P 500 went into a bear market, they went down by just over 1%. (FactSet is a source)

Stoltzfus’s hopes for the S&P 500 were dashed in the end by multiple compression.

Last year, we talked about how the market’s “multiple,” or price-to-earnings ratio, is just the amount investors are willing to pay for $1 of earnings power. Stoltzfus now thinks that the S&P 500 will trade at 20.9 times next year’s earnings by the end of the year. This is down from his previous prediction of 23.1 times forward earnings. During an economic cycle, multiples tend to shrink as interest rates rise and expected growth slows.

Investors are currently debating whether the market is expecting a slowdown or a full-on recession. Earlier this week, some analysts said that the combination of rates going down, commodity prices going down, and the dollar going up showed that the financial markets were moving toward a recession.

Stoltzfus says that investors can “feel” the risk of a recession right now, but that persistent inflation and rising interest rates, which have shook the financial system, should be solved in the long run by a flexible and open-minded corporate sector.

“Over time, as companies adjust to a new economic reality, the competitive pressures—driven in part by technology and innovation—that kept prices in check during the last economic cycle should return,” Stoltzfus wrote. “We still think that a growing US economy will help power a global recovery as US import demand pulls in goods and services from all over the world.” Apple or Android users can get the Editorials99 Finance app.

About the author

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Kathy Lewis

Kathy Lewis is an all-around geek who loves learning new stuff every day. With a background in computer science and a passion for writing, she loves writing for almost all the sections of Editorials99.

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