Forecast Cuts

From MarketWatch:

"Nearly two weeks into the Russia-Ukraine war, and with economic headwinds growing, Wall Street analysts were beginning to chip away at their S&P 500 expectations for this year. A test of 3,670 on the main index SPX, can’t be ruled out, warned a team of strategists led by Julian Emanuel at Evercore ISI, in a note to clients on Sunday. Their actual downgrade was a less dramatic move to 4,800 from 5,100, but it came with several caveats."

"That move follows a similar downgrade from Citigroup strategists, who said late Friday that they are now expecting the S&P 500 will end 2022 at 4,700 versus their previous target of 5,100."

"Ed Yardeni, president of Yardeni Research told clients he was cutting his year-end 2022 and 2023 S&P 500 forecast targets to 4,000 and 5,000 respectively. For the U.S. economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the war. A recession can no longer be ruled out…for stock investors we think 2022 will continue to be one of this bull market’s toughest years,” he wrote."

As I write this, the S&P is off ~ 12% from its highs, the Nasdaq ~ 20%. And aside from the Apple's and Google's of the world holding up indices (relatively well), drawdowns for most stocks are much, much worse. Like clockwork, price target cuts from Wall Street come after damage has already been inflicted.

What I see here is different. There is an inverse relationship between current stock prices and future stock returns. As the former goes up, the latter comes down, and vice versa. Our financial planning software does a nice job adjusting future asset class returns accordingly. After a stretch like 2019-2021, future return assumptions come down. After the start to the year we've had, they've started to go in the other direction. 

As painful as this is, and as unappealing an upcoming quarterly statement or balance sheet may look, know that they're typically accompanied with higher future returns. Don't compound a problem by being a Wall Street bank and react to what's already taken place. You'll likely regret it on the other side.