S&P 500 Forecast – 2022

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  • Current Price as of 5/18: $3,923
  • Average: $3,596 (-8%)
  • High Prediction: $4,384 (+12%)
  • Low Prediction: $2,878 (-27%)

However, PB has been consistently increasing since the recession from 2008. Given the current macro environment, there’s a high likelihood that there will be a ratio compression over the next few years.

From 2008 to 2010, the PB ratio dropped by 30%. The same rate of drop in current levels would leave the PB at 2.5, which falls more inline with 2015 and pre-2008 levels. If that were to happen, the SPX predicted price falls to $2,535 (-35%).

Given that the price has already decreased by 17%, another 30% drop will bring it to recession levels. In comparison, the March 2020 Covid correction from peak to valley was only ~27%. So if it does fall into recession territory, it’ll be helpful to study historical recessions.

Therefore, a 45% drop from 2022 peak brings the forecast down to $2,616 that will take between 17 to 30 months to reach the valley. With inflation in records high, it’s unlikely fiscal policy can bring interest rates back to 0 and for us to see the record recovery we did during 2020.

This is still an early forecast which lots of factors still to consider. But at face value, a correction is already happening and the question is whether it’ll turn to recession territory.

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