UBS lowers S&P 500 target price for 2022, says earnings estimates could drop further
UBS lowered its target price for the S&P500 and expects earnings estimates to fall further from here – the latest potential indicator of an impending slowdown. The investment bank cited prolonged high inflation and higher yields as the reason to cut its target price and EPS forecast for the broader market index. UBS lowered the target price for the Standard & Poor’s 500 Index to 4150 in 2022, and 4400 in 2023, based on a 10-year real and nominal return forecast. These estimates are lower than 4,850 and 5,000, respectively. “We think there is a modest rally in equities given our assumptions of slower growth but no recession as well as slowing inflation,” UBS strategist Keith Parker said in the note. “Low bond volatility is a necessary precondition for a sustainable bottom in equities.” The revised estimates come with the broader market index remaining at around 19% from its highs, and as Wall Street this month looks ahead to what many expect to be a choppy earnings season. Investors anticipate lower earnings estimates as many companies operate through greater inflationary pressures. UBS also trimmed its earnings forecast based on slowing GDP growth and rising costs, although the investment bank believes revenue and margins will get a boost in the near-term from strong nominal growth. UBS lowered its earnings per share forecast to $234 in 2022, and $247 in 2023. Those expectations are down from $235.5 and $250 previously. “We revised our earnings forecasts less as some variables changed, with risks to the downside to earnings estimates this year and more than next,” the note read. —Michael Bloom of CNBC contributed to this report.