Survey: Analysts foresee 12% rise in stock market over next 12 months

The stock market had a turbulent 2022 with major indices like the S&P 500 and Nasdaq Composite in bear market territory. The outlook for equities should improve in the year ahead, according to market experts polled as part of Bankrate’s third-quarter Market Mavens survey.

The expert group is forecasting the S&P 500 to rise 12% over the next 12 months, the eighth straight quarter the survey has forecast positive returns.

Respondents to the survey expect the S&P 500 to rise to 4,335 over the next year, up from 3,873.33 when the survey period ended Sept. 16. Experts favor US stocks over international markets but are divided on whether value or growth will outperform.

“It is a hopeful sign that despite the emergence of a bear market this year, our survey participants see upside potential for equities over the next year and years to come,” said Mark Hamrick, senior economic analyst at Bankrate. “They are somewhat optimistic about trading, but they see support for the market as a group.”

“For the typical long-term investor, slow and steady wins the race,” Hamrick said. “Equities exposure has historically produced excellent long-term returns. With most Americans “in the market” to save for retirement, staying invested is critical as it is virtually impossible to predict the timing of a positive market turnaround.”

Stock investors have had a hard time this year, with the S&P 500 and Nasdaq falling more than 20% from their highs and the Dow Jones Industrial Average down almost 20%. Markets have retreated as investors grapple with rising interest rates, high inflation and the possibility of a looming recession. Stocks rallied over the summer before falling again as hopes of a possible respite from high inflation failed to materialize and the US Federal Reserve hiked interest rates by 0.75% for a third consecutive month in September.

Despite the difficult environment, the market experts assessed the prospects for shares consistently positively over the course of the year.

They expect the market to grow about 11.9% over the next 12 months, compared to 12.3% in the second-quarter survey and 11.4% in the first-quarter survey.

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Not a single analyst polled predicted the market would fall over the next year, with the least optimistic analyst predicting a rise of just 2.6%. The most optimistic prediction was a nearly 21% gain, while the average one-year forecast for the S&P 500 was 4,335.

“Over the course of the next year, inflation and tightening by central banks will have peaked, which has historically been a catalyst for stocks to rally,” said Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management. “The year ahead will be volatile, but the average investor should stick to their long-term asset mix.”

Most analysts expect five-year stock returns to be in line with historical averages

Respondents to the survey largely expect returns to be in line with historical averages over the next five years. Fewer experts expect below-average returns over the next five years than in the previous survey.

This is how the numbers break down:

• Around 46% of respondents say returns will be around their historical average over the next five years.

• Around 27% say returns will be lower than long-term returns.

• Around 27% say returns will be above historical averages.

The numbers show a slight improvement in the experts’ outlook compared to the previous survey, when about 42% expected returns to be below normal over the next five years. The fall in the market has made valuations a bit more attractive and slightly increased future expected returns.

“Valuations are neither overly cheap nor overly expensive, which sets the stage for returns close to historical averages,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.

“Given the decline this year, the market has experienced a reset that should deliver average returns over the next five years,” said Chuck Carlson, CEO of Horizon Investment Services.

However, not everyone is optimistic that the worst is over for investors.

“The economy now appears focused on providing better pay for workers and is less able to take advantage of the low-wage global economy,” said Robert Brusca, chief economist at Fact and Opinion Economics. “The ‘golden age’ of stocks is over.”

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On the other end of the spectrum is SLC Management’s Mullarkey, who believes investments and technological advances will outpace returns in the years to come.

“The next five years will see more capital investment from companies and countries as they bring more of their supply chains offshore and onshore and invest more in sustainable energy solutions,” he said. “This should stimulate a cycle of innovation in new technologies.”

US stocks are still preferred over international stocks

Analysts polled by Bankrate continue to overwhelmingly favor US equities over international equities for the next 12 months. Here is a breakdown of the answers:

• Around 91% of respondents favor US equities in the coming year.

• Not a single analyst surveyed favors international equities.

• About 9% said returns would be about the same between the two.

In the previous quarter’s survey, 58% preferred US stocks, 17% preferred international stocks, and 25% said returns would be about the same.

The analysts’ strong preference for US equities seemed at least partly due to their relatively negative outlook for the international economy.

“The United States remains in a position of strength relative to global economies,” said Wayne Wicker, chief investment officer at MissionSquare Retirement. “From a geopolitical perspective, we view Europe as vulnerable to a number of issues that would result in much weaker fundamentals over the next year. This will have a corresponding negative impact on emerging markets, which will also lag domestic market returns.”

Kim Caughey Forrest, chief investment officer at Bokeh Capital Partners, said she views US stocks as “the best house in a very bad neighborhood.”

Brusca was the only analyst to express positive sentiment on international markets, saying he sees plenty of upside potential in Japan, partly due to the weak yen.

Experts will distinguish between value and growth stocks in the coming year

Unlike the second-quarter survey, pundits are divided on whether value stocks or growth stocks will outperform next year. Those who favor value stocks cited rising interest rates as a headwind for growth stocks, while those who favor growth stocks believe rates may be peaking. Here is a breakdown of the answers:

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• About 36% of respondents favor value stocks over growth stocks over the next year.

• About 36% prefer growth stocks to outperform value stocks.

• About 27% think returns will be about the same.

This survey shows a streak of seven consecutive quarters in which value stocks were favored over growth stocks.

“We believe the current regime of tightening monetary policy and higher interest rates will create headwinds for higher multiple growth stocks, particularly in the consumer discretionary and communications services sectors,” said Wells Fargo’s Samana. “That should result in value-based areas like energy and health having a better chance of outperforming.”

But Horizon’s Carlson believes the Fed’s tightening phase may be coming to an end.

“My expectation is that interest rates will go down or will go down next year, as will inflation,” he said. “These work to the advantage of growth stocks.”

However, MissionSquare’s Wicker believes that choosing between growth and value investing styles isn’t that easy.

“As interest rates rise, investors need to be more selective within sectors,” he said. “The era of just buying growth or value is likely to be behind us in the short-term as the uncertainty in the economy will require a more company-specific focus.”methodology

Bankrate’s survey of stock market professionals for the third quarter of 2022 was conducted September 8-16 via an online survey. Survey requests were emailed to potential respondents across the country, and responses were voluntarily submitted through a website. Respondents were: Dec Mullarkey, Managing Director, SLC Management; Brad McMillan, Chief Investment Officer, Commonwealth Financial Network; Kenneth Chavis IV, CFP, Senior Investment Manager, LourdMurray; Kim Caughey Forrest, Chief Investment Officer/Founder, Bokeh Capital Partners; Chuck Carlson, CFA, CEO, Horizon Investment Services; Robert A. Brusca, Chief Economist, FAO Economics; Sam Stovall, chief investment strategist, CFRA Research; Hugh Johnson, Chief Economist, Hugh Johnson Economics; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Wayne Wicker, Chief Investment Officer, MissionSquare Retirement; Louis Navellier, CIO, Navellier & Associates, Inc.

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