It was another tough week in a brutal year for bears.
Investors limped into the week amid incontrovertible evidence price pressures are building in the economy amid a market rally that has sent the S&P 500 up 25% in 2021.
Wall Street forecasters have been saying all year that a slowdown in the 20-month bull market would be natural, with valuations stretched, growth forecast to slow and the Federal Reserve expected to hike interest rates in 2022.
The average projection for the S&P 500 at the end of 2022 is 4,843, representing a mere 3% advance from the current level.
Chalk up caution among the normally bullish group to an unorthodox recovery that has played havoc with forecasts.
As countries in Europe announced new travel restrictions amid a fresh wave of pandemic cases, investors again sought safety in the usual beneficiaries of a stay-at-home economy — software and internet stocks.
In the end, the stock pessimists are almost surely staring at a year where their forecasts for equities missed badly.
Being wrong about the pace of the recovery in 2021 hasn’t fostered optimism among strategists for 2022.
An increase of 1 percentage point in the discount rate could send the S&P 500 into a tailspin that takes it to 3,600, her team’s model shows.
Helping underpin this year’s $12 trillion stock rally is a string of corporate earnings that has defied all the concerns ranging from supply-chain snarls to labor shortages and commodity inflation.
While that doesn’t necessarily spell trouble for the market, it threatens to remove some buffer should rates start to creep up.
Ned Davis Research compared the S&P 500’s earnings yield — how big profits are relative to share prices — to inflation-adjusted 10-year Treasury yields, and found that the lower premium that stocks offer over bonds, the worse they perform.
firms have announced plans to buy $1.1 trillion of their own shares since January, almost triple the level at this time last year, and poised to surpass the record set in 2018, data compiled by Birinyi Associates and Bloomberg show.
“We do not believe the returns registered in 2020-2021 are sustainable,” Belski wrote in a note earlier in the week.