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5 of Wall Street’s biggest banks have very different predictions on what stocks will do this year—and 2 are pretty bearish

January 20, 2022, 10:00 AM UTC

If you had asked someone pre-COVID about what was going to happen to the world and the markets over 2020 and 2021, they likely would have been wildly off target. That’s why prognostication is such a dangerous game: None of us can ever really know what lies ahead.

That being said, some very smart people are paid handsomely to make their best guesses for clients. Here’s what some Wall Street titans are saying lies ahead in 2022, and how markets will fare in what’s apt to be another tumultuous year.

Goldman Sachs

Expect the S&P 500 to rise to 5100, according to Goldman Sachs chief U.S. equity strategist David Kostin, which represents around a 7% boost from current levels. The firm’s economics team cites rapid growth as a key driver going forward, along with supply chains that are “beginning to normalize” after so much disruption. Inflation is certainly a fear, although the firm sees that concern drifting down to 2.4% by 2022’s fourth quarter. Some particularly smart bets are cyclical equities—in particular those boosted by the “reopening” trend after this prolonged COVID era—and non-U.S. markets, which should outpace American gains. One thing going for equities: the fact that there are few other places to head to for investors. With bond yields still so low, “equities will remain the asset of choice.”

RBC Capital Markets

Don’t expect a blowout year for the markets, suggests the firm’s head of U.S. equity strategy, Lori Calvasina. Instead look for a “solid year,” with gains “more moderate than those seen in 2021,” she wrote with her team in a mid-December note. That means a target of 5050, making for full-year returns of roughly 7%. Of course there are any number of variables looking to spoil the party—inflation, supply-chain pressures, Omicron spread, a monetary policy that is tilting “hawkish”—but even the firm’s worst-case scenario has the index sinking only 2%. If you can accept some volatility along the way, and remember that midterm election years tend to deliver weaker results, then the 5050 expectation is a “reasonable way to think about how 2022 will end up.”

Morgan Stanley

As the football saying goes, championships are won with defense—and that’s the wise approach to current markets, according to Morgan Stanley analysts, with an S&P 500 target of 4400 for 2022. While 2021 returns exceeded expectations, “we still recommend large-cap defensive bias given tightening financial conditions and decelerating growth,” writes the firm’s team led by chief U.S. equity strategist Mike Wilson in a January note. They acknowledge the relatively bearish stance has resulted in some “pushback” from clients, but see more attractive prospects in small- and mid-cap value stocks as opposed to growth. Sectoral rotations should tilt toward real estate and health care, while shifting underweight on consumer discretionary. This spring is the likely time for a reset of market valuations, which would bring P/E levels back in line with five-year averages: “A new year brings new investment opportunities, even if the narrative isn’t changing.”

Deutsche Bank

Grab the Tums, because 2022 represents a “larger degree of uncertainty and a wider range of possible outcomes than is typical,” says the DB research team led by chief U.S. equity strategist Binky Chadha. That said, continued earnings growth of 10% should power the index to around 5250 for the year. Equity inflows and buybacks should support the market nicely, and “household and corporate balance sheets are strong.” A caveat: Equity valuations are already “very rich,” with levels only exceeded in heady times like the late 1930s and late 1990s. Potential rate hikes could also apply the brakes to the housing and auto markets, which would affect overall growth. As for attractive sectors, DB analysts suggest being overweight in energy, materials, and financials. One potential gold mine: Europe, where multiples are much lower compared with the U.S., and which should boast relatively robust growth numbers over the course of 2022.

BofA Global Research

The Bank of America team sees equity markets coming back to earth in 2022, after a year in which valuations seemed to defy gravity despite global troubles. BofA’s S&P 500 target for the year is 4600, a slight decline from current levels, cited in a November note from the research group led by head of U.S. equity strategy Savita Subramanian. Blame a mix of “lofty expectations,” “frenzied IPO activity,” and the “first Fed hike into an overvalued market.” Analysts suggest being underweight in consumer staples and discretionary, while tilting overweight in energy, health care, and financials. Decent earnings growth and dividend hikes should provide some support to markets, but the watchword of the year should be caution: “Where does that leave us? Selective.”

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