David Lefkowitz, Chief Investment Officer and Head of US Equities at UBS, slashed the price December 2022 target on the S&P 500 to 3,900 from 4,300.
The strategist now sees the benchmark index trading at 4,200 in June 2023, down from the prior 4500.
The price target cut reflects lower S&P 500 EPS projections due to “hotter-than-expected inflation, which has prompted us to increase our expectations for interest rates and Fed rate hikes.” .
The new EPS estimates for 2022 and 2023 are now calling for $227 and $235, respectively.
In case the recession fears materialize, Lefkowitz sees the S&P 500 going to 3,300. The strategist reminded clients that the average bear market takes about 16 months for the market to bottom with the current bear market going into its sixth month.
“While it's difficult to know how long this one will last, we believe investors will be focused on signs that inflation is cooling and the Fed is getting to the end of its hiking campaign,” the strategist told clients in a note.
UBS still sees a soft landing as its base-case scenario.
“Very strong demand for labor is supporting consumer spending, and healthy household balance sheets should also provide some cushion.
However, if the downside scenario for the US economy plays out, then the US could experience a shallow recession in the next 12 months. Still, until inflation improves or there is a dovish shift in Fed policy, US equity markets are unlikely to experience meaningful and sustained upside in the near term,” Lefkowitz concluded.