S&P 500 choppy on first trading day of 2022, remains close to record levels at just under 4800

• The S&P 500 is trading a tad higher on the first session of the year, having seen choppy trade post-open.
• Most banks are bullish on the index for 2022.

US equities saw a choppy start to first trading session of 2022, with the S&P 500 index swinging between 4795 highs and sub-4760 lows in a matter of minutes in wake of the 1430GMT equity cash open. Those lows under the 4760 level were the lowest such levels that the index has traded at in one week. However, at current levels around 4780, the index is trading with modest on-the-day gains of about 0.3%. That means the index is only about 0.7% below the record levels near-4810 it printed last week, indicative of the fact that US equity market sentiment remains very strong at the beginning of the new year.

To the downside, S&P 500 bulls may jump on any dip back to support in the 4750 as a buying opportunity, though the true dip-buying has happened at the 21-day moving average in recent weeks. It proved a great entry point for short-term bulls twice in December. In terms of the other major US bourses, the Nasdaq 100 has been choppy within a 16.3K to 16.5K range and is about 0.4% higher on the day, whilst the Dow is attempting to poke back above 36.5K and trades higher by about 0.25%. The S&P 500 CBOE volatility index, often referred to as Wall Street’s “fear gauge”, is trading subdued just above recent lows in the 17.00 area, only a few points above 2021 lows in the 14.00-15.00 region and well below recent Omicron-uncertainty induced highs in the mid-30s.

Bank views

Given the turn of the year, banks have been releasing their views on how the S&P 500 will perform in the year ahead. Many banks are bullish. BNP Paribas say they “expect to see some compression of price/earnings ratio multiples for the S&P 500 as rates rise... However, strong earnings growth could still translate into about a 10% total return, in our view”. As such, the bank year-end forecast for the S&P 500 is 5,100.

BNY Mellon say “while the kind of returns we’ve seen in the past three years may not be repeated in 2022, we still believe equity markets can deliver another solid year – especially if economies and earnings continue to grow, without inflation becoming a longer-lasting problem”. Their year-end target for the S&P 500 is 4900-5100, which translates to a gain of about 5-10%.

JP Morgan target 5050 by the end of 2022. “This represents a smaller percentage appreciation compared to our 2021 forecast; however, we do think international equities, emerging markets and cyclical market segments will significantly outperform and deliver two- to three-times higher returns” the bank says. “Increasing interest rates and marginally tighter monetary policy should be a headwind for high-multiple markets such as the Nasdaq”.

Unicredit expect the S&P 500 to end 2022 at around 5100. “This would be around 9% above current levels” the bank says and “should be mainly driven by three important sectors in the U.S.: tech, financials and health care. Apart from solid earnings growth estimates, these sectors are highly likely to benefit from a high volume of share-buybacks in 2022”.

Not all banks agree, however. Morgan Stanley Wealth see the S&P 500 dropping to 4400 by the end of the year. “The core of our cautious 2022 view on the S&P 500 is our belief that during a midcycle transition, price-earnings ratios typically compress” the bank says. “As the market’s price-earnings ratio reverts to a more normal 18 from the current 22.5… If that is correct, the S&P 500 will be 3% lower a year from now even with an expected 14% gain in earnings”.