Southwest Melts Down as US Freezes Over

2022 Performance Review for Financial Predictions

Author

Litquidity Capital
December 28, 2022

Good afternoon,

Apple hit its lowest since June 2021 over supply concerns, Cathie Wood's ARK erased all its gains over the last 5 years, and the finance world is publishing its predictions for 2023.

Just like the disclaimer you need to add to every slide, past performance isn’t indicative of future results. But we will dunk on analysts’ past predictions if they’re particularly flagrant, and look to continue those fouls into 2023.

Let’s dive in.

Bottom Line Up Front

  • Verizon is teaming up with Netflix in its push to become the streaming middleman (WSJ)

  • Russia banned the sale of its oil and petroleum products to countries that impose a price cap on them (Reuters)

  • Southwest cancels thousands more U.S. flights (yes, that many more since yesterday’s newsletter) on weather woes (CNBC)

  • The Bureau of Labor Statistics (BLS) is pushing back against the Philly Fed report that Q2 2022 lost 1 million more jobs than initially reported (Just the News)

  • Justin Bieber is reportedly nearing a deal to sell his music rights to Blackstone-backed Hipgnosis Song Management. The deal is valued at around $200M and includes his interest in both his publishing and recorded music catalogs (PE Insights)

But first, a message from today's partner, Vinovest.

Yes, you can invest in wine; the ultra-wealthy have been doing it for centuries, when wine investing was limited to exclusive auctions. Enter Vinovest, a platform that enables anyone to invest in wine. It uses master sommeliers and AI algorithms to build a diversified wine portfolio based on your investing preferences. Vinovest authenticates, stores, and insures your wine, but you still own it 100%. Discover wine investing today, and your wealth will thank you.

Your Mom's Broker's 2022 Performance Review

Even 2022’s most bearish forecast was massively bullish. While every firm is tossing their 2023 projections into the ring, let’s contextualize with how off they were this year.

Just like analysts after training, we’re giving firms one revision before flaming them. Let’s discuss the grades of each bank, based on their revised projections of 2022’s S&P 500 end-of-year value.

A 

Just like this bonus season, there are no winners. Some came close, but no cigar. Markets are currently predicting the value of the S&P 500 to end between 3,800-3,999.99.

B

Morgan Stanley (4,400)

  • Heading into 2022, Morgan Stanley stood out on Wall Street thanks to its prediction stocks would fall in the coming year.

  • In a research note to clients, written on November 14, 2021, the firm predicted the S&P 500 would slide to 4,400 by the end of 2022. At the time, this price target implied a 6% decline for the S&P. It was the most bearish forecast among the prominent Wall Street firms (TKer).

  • 2023 projection: Price target of 3,900 for the S&P 500 and expects the benchmark index to flatline over the next 12 months (NYT).

C

Barclays (4,500)

  • The investment bank downgraded its 2022 S&P 500 forecast to 4,500 from 4,800 and reduced its per-share earnings view for the benchmark to $223 from $235. At the time of the revision, the S&P 500 stood at ~4,477 (BI).

  • Deputy chief US economist, Jonathan Millar, cited in analysis that: "We believe that SPX earnings will have a greater difficulty in 2022 than currently anticipated, with the potential for a strong reversion in goods consumption that is underappreciated by current consensus expectations."

  • 2023 projection: S&P 500 end-of-year value of 3,725 (Barclays).

Bank of America (4,500)

  • Trimmed its S&P 500 target to 4,500 (was 4,600).

  • Predicted “A 10% YTD decline implies a 1/3 chance of a recession has been priced in…” (BofA).

  • Since its original estimate, the firm cited “War, GDP cuts, Fed on steroids” as reasons for the revision (BofA).

  • 2023 projection: S&P 500 end-of-year value of 4,000. Bearish risk assets in H1, likely turn bullish H2. The firm expects the market narrative to shift from inflation and rates “shocks” of 2022 to recession and credit “shocks” in H1’23. It also anticipates a more bullish story of “peaks” in inflation, Fed funds, bond yields and the US dollar in H2’23 (BofA).

D

Jefferies (4,650)

  • Restated its S&P 500 target price as 4,650 on May 10, 2022.

  • Analysis included: “The battle the Fed now has is with labor compensation and ensuring that a wage spiral doesn’t take hold. As neutral rate expectations are reset, market PE multiples are being reappraised" (Jefferies).

  • 2023 projection: Expects negative EPS growth of 6.5% in 2023 (EPS integer: 204) with an unchanged S&P 500 target of ~4,200 – the latter helped by the fall in US treasuries (Jefferies).

Goldman Sachs (4,700)

  • Cut its 2022 S&P target to 4,700.

  • Trimmed EPS forecasts to $221 in 2022 (+5% growth from 8%) and $233 in 2023 (+6%).

  • Revisions were “to reflect slower US and global economic growth and higher commodity prices that it previously expected” (GS).

  • 2023 projection: S&P 500 end-of-year value of 4,000. Analysts expect the Fed to further increase its benchmark interest rate to 5.0-5.2% (GS).

F

UBS (4,850)

  • On March 22nd, the firm announced it was maintaining its S&P 500 target of 4,850 (UBS).

  • Reduced its S&P 500 EPS forecast for 2022 to $235.50 from $242. Further reduced 2023 EPS down slightly to $250.50 (vs. $252 previously).

  • 2023 projection: S&P 500 end-of-year value of 3,900 (UBS).

RBC (4,860)

  • Trimmed its year-end 2022 S&P 500 price target from 5,050 to 4,860.

  • Cited the change as a result of: “The recent move up in bond yields was the biggest contributor to the downward revision to our forecast” (RBC).

  • 2023 projection: S&P 500 end-of-year value of 4,100 (RBC).

#VALUE! (i.e. We’ll be exploring other brokers)

JPMorgan (4,900)

  • Cut its S&P 500 target to 4,900 (JPM).

  • 2023 projection: In 1H23, it expects the S&P 500 to re-test this year’s lows as the Fed overtightens into weaker fundamentals. More, “This sell-off combined with disinflation, rising unemployment, and declining corporate sentiment should be enough for the Fed to start signaling a pivot, subsequently driving an asset recovery, and pushing S&P 500 to 4,200 by year-end 2023” (JPM).

Credit Suisse (4,900)

  • Lowered its 2022 S&P 500 price target to 4,900 from 5200.

  • Reiterated its 2022-23 EPS estimates of $235 and $255, implying 12.2% and 8.5% growth.

  • New target was based on “a P/E of 19.2x from 20.4x” (CS).

  • 2023 projection: S&P 500 end-of-year value of 4,050 (CS).

Takeaways for 2023

  1. Unless you’re Cathie Woods, predicting corporate earnings is not that difficult.

  2. Predicting an index level on a specific date in the future is impossible. You can best gage the wisdom of the crowds through prediction markets.

  3. Uncertainty is greater than at any time since the worst of the Great Financial Crisis.

  4. Negativity toward the stock market is also the greatest it’s been since 2000, a period in which two bubbles have burst.

Forecasts powered by Kalshi

As always, these market forecasts are powered by Kalshi, the first regulated prediction market in the US. Trust data, not pundits, and get your forecasts from people with real skin in the game.