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Survey: Top analysts see rebounding stock market over the coming year

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The year 2022 has not been kind to stock investors, but analysts surveyed by Bankrate believe that things may soon be looking up. In Bankrate’s Second-Quarter Market Mavens survey, a group of top market professionals expect the Standard & Poor’s 500 Index to rise more than 12 percent in the coming year. It’s the seventh straight quarter that the survey has predicted a rise in the market.

Overall, these market watchers expect the S&P 500 to climb to 4,118 in the next year, up from 3,666.77 when the survey closed on June 16, 2022. These analysts favor U.S. stocks over their international rivals in the next year, and they continue to like value stocks over growth stocks.

“Since our previous survey, stocks have entered a bear market,” says Mark Hamrick, Bankrate’s senior economic analyst. “As with timing the market, it is impossible to know how long this period will last.”

“We would lean on two lessons of history: People need to be invested in the long term for the purpose of retirement savings, and equities do provide superior return over longer periods of time,” says Hamrick. “This suggests most long-term investors need to remain invested, leaving aside how they may choose to allocate assets and manage risk.”

Forecasts and analysis:

This article is one in a series discussing the results of Bankrate’s Market Mavens second-quarter survey:

Stocks expected to bounce back over coming year

This year has been a tough one for stocks, with the market beginning weak and then entering a bear market, with stocks off by more than 20 percent. Previously high-flying sectors have been hit earlier and harder than bellwether blue-chip stocks, as these sensitive areas responded faster to concerns that the Federal Reserve would reduce financial stimulus to the market.

With this backdrop, experts in the Bankrate survey actually grew somewhat more optimistic than they were in the prior quarter, expecting modestly higher returns on the S&P 500 in the year ahead. They expect the market to rise about 12.3 percent over the coming year, compared with 11.4 percent in the first-quarter survey and 8 percent in the fourth-quarter 2021 survey.

Only one of the 12 analysts surveyed anticipated that the S&P 500 would fall from 3,666.77, where it ended the survey period. And even that expected decline was modest – less than 5 percent. Meanwhile, one analyst put the index at 5,024 – a gain of more than 37 percent. The average estimate on the S&P 500 in the next 12 months was 4,118.

“As central banks around the world begin to tighten policy and fight inflation, the risk of global recession increases,” says Michael Farr, CEO, Farr, Miller & Washington. He expects the market to fall in the near term before rebounding to its current level in 12 months.

“Historically, the S&P 500 bottoms when the Fed is about halfway through the tightening cycle,” he says. “Markets won’t see a bottom until the Fed sees a top in rates.”

Analysts more cautiously optimistic about five-year stock returns

Experts surveyed by Bankrate have become somewhat more optimistic about their expected returns over the next five years than they were in the prior survey. Fewer analysts expected lower-than-normal returns than they previously did.

Here’s how the numbers break down:

  • About 42 percent of respondents say that returns will be below their historical average over the next five years.
  • Around 33 percent say returns will be about the same as long-term returns.
  • Exactly 25 percent expect returns to be higher than the historical average.

The results showed survey respondents making a clear move toward more optimistic scenarios than they had in the last survey, perhaps unsurprising given the poor returns so far in 2022. Expected future returns typically rise as the market declines.

Experts gave a variety of reasons for their change of heart without many unifying themes.

“We have exited an extended period of mostly excess returns, but with the normalization in interest rates – and inflation rates to a certain degree – returns are likely to align more with their historical average,” says Patrick J. O’Hare, chief market analyst, Briefing.com.

“Recent weakness has put valuations roughly in line with long-term averages, which signals roughly average future long-term returns,” says Jeffrey Buchbinder, equity strategist, LPL Financial.

Others were less optimistic about future returns, but weren’t expecting market declines, either.

“Expect most major economies to perform close to trend growth levels over the next several years with pockets of emerging markets likely to lag,” says Dec Mullarkey, managing director, SLC Management. “Therefore, equity markets should still deliver solid returns in the mid-single digits. While reasonable, they will be below average as countries have less capacity for fiscal stimulus to push growth, given the debt built through the COVID response.”

U.S. stocks remain a top pick over global stocks

The Bankrate survey revealed that these experts preferred U.S. stocks over international stocks for the next year. American stocks were still the top choice by a wide margin:

  • About 58 percent of respondents preferred U.S. stocks in the coming year.
  • Around 17 percent preferred international stocks
  • A full 25 percent said that returns would be nearly equal between the two.

In the prior survey, 56 percent of experts tapped U.S. stocks, 25 percent favored international equities and 19 percent said returns would be about the same.

Mullarkey likes domestic stocks and says, “Earning expectations for the U.S. are still strong, while regions like Europe are at greater risk of a growth setback or recession.”

Buchbinder feels similarly, pointing to “better earnings and economic growth forecasts” in the U.S.

Sam Stovall, chief investment strategist, CFRA Research, also likes American equities over the coming year, saying that “Europe will likely experience a deeper recession than the U.S.”

Despite those concerns, global stocks were preferred by a few respondents. Chuck Carlson,  CFA, CEO, Horizon Investment Services, prefers foreign stocks because they offer a “better valuation” than domestic counterparts.

O’Hare expects returns to be about the same between U.S. and foreign stocks, given the larger macroeconomic forces at play.

“This is tough to handicap, primarily because U.S. and global markets will both be contending with central banks tightening monetary policy and economic and earnings growth slowing as a result of the higher rates,” he says. “It is unknown how much growth will slow, but return prospects for all equity markets should be constrained by lackluster earnings growth.”

Experts like value stocks in tough economic times

While interest rates are rising, growth stocks tend to face a severe headwind, but that’s less so for value stocks. And value stocks remain the preferred pick for the market mavens in the latest survey. These experts were even more bullish on value stocks than they were last time out.

  • About 73 percent of respondents preferred value stocks to growth stocks over the coming year.
  • Just 9 percent tapped growth stocks to outperform value.
  • Around 18 percent expect returns to be about the same.

In fact, it was the seventh straight quarter that the Bankrate survey showed value stocks were the preferred pick of the experts.

“Professional investors continue to prefer value over growth stocks, as the market continues to discount rising interest rates and challenging economic prospects,” says Hamrick. “If nothing else, investors are now able to get into stocks at a relative discount, leaving aside the near-term behavior of the market.”

Many analysts cited rising interest rates and other macroeconomic factors as major reasons they favored value stocks over growth stocks.

“We are in an inflationary and rising interest rate environment, which is typically where value outperforms the market,” says Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray.

“As the Fed navigates to its terminal rate over the next year, defensive stocks and those focused on core sectors like energy and staples should hold up better until it becomes clear how deftly the Fed can deliver a soft landing,” says Mullarkey, who favors value stocks.

Jim Osman, founder, The Edge Spinoff Research, likes value stocks but with some type of catalyst such as a company spinoff: “Value is not enough. Everything is cheap.”

“Tech is radioactive – no telling when it stops,” says Robert A. Brusca, chief economist, FAO Economics, noting the massive selloff in once-high-flying growth stocks.

At least one analyst expects value stocks will outperform early before growth comes back. “LPL Research favors value over growth short term, but sees rotation into growth later this year,” says Buchbinder, who anticipates returns between value and growth will be similar.

Just one survey respondent tapped growth stocks to outperform value stocks.

“Many growth stocks have already fallen sharply from their highs as interest rates have moved up,” says O’Hare. “They will likely have further to fall in the near term because rates are not done going up. However, an environment of weakening economic growth in the back-half of 2022, and weaker growth in 2023, should put a premium again on growth companies with above-average earnings potential and performance.”

Methodology

Bankrate’s second-quarter 2022 survey of stock market professionals was conducted from June 9-16 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Dec Mullarkey, managing director, SLC Management; Brad McMillan, chief investment officer, Commonwealth Financial Network; Jim Osman, founder, The Edge Spinoff Research; Patrick J. O’Hare, chief market analyst, Briefing.com; Jeffrey Buchbinder, equity strategist, LPL Financial; Robert A. Brusca, chief economist, FAO Economics; Sam Stovall, chief investment strategist, CFRA Research; Chuck Carlson, CFA, CEO, Horizon Investment Services; Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Marilyn Cohen, CEO, Envision Capital management; and Michael Farr, CEO, Farr, Miller & Washington.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

Written by
James Royal
Senior investing and wealth management reporter
Bankrate senior reporter James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.
Edited by
Senior wealth editor