Survey: Pros foresee stocks rallying 8% over the coming year

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Published on April 04, 2023 | 6 min read

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After a strong start for stocks to 2023 and despite the threat of a recession, investment pros see the S&P 500 index rising 8 percent over the next four quarters, according to the Bankrate First-Quarter Market Mavens survey. In fact, it’s the tenth straight time the survey has predicted gains in the index over the upcoming 12 months.

Survey respondents said that they expect the S&P 500 to rise to 4,289 on average, through the end of the first quarter 2024. That’s up from 3970.99, when the survey closed on March 24. These experts continued to prefer U.S. stocks over international stocks, but they flipped their preference for value stocks in recent quarters to growth stocks.

“Survey respondents are increasingly optimistic that a new stock market advance could begin in the coming months or might have already begun,” says Mark Hamrick, Bankrate’s senior economic analyst. “For long-term investors, including those saving for retirement, a methodical approach requires less consideration of short-term market performance and more focus on results farther out over the time horizon.”

“The Federal Reserve has been raising interest rates for a year now, creating headwinds for the stock market,” adds Hamrick. “Officials are signaling they are close to the end of this tightening cycle. While uncertainties are still elevated involving recession risks and inflation, the economy has proven more resilient than expected in these early months of the year.”

Forecasts and analysis:

This article is one in a series discussing the results of Bankrate’s First-Quarter 2023 Market Mavens survey:

Stocks expected to rise over next year

Coming off a rough 2022 with the S&P 500 hitting bear market territory, stocks look poised for a rebound over the next 12 months, say the investment experts surveyed by Bankrate. Following recent turmoil from some high-profile bank failures and a slowing economy, it looks like the Fed may be close to ending its streak of raising interest rates.

Through the first quarter of 2024, analysts expect the S&P 500 to climb 8 percent, to 4,289 from 3,970.99 when the survey closed on March 24. That follows a year of optimism in 2022, when each quarterly survey predicted that the market would be higher in a year. In the fourth-quarter 2022 survey, analysts expected the market to climb 7.8 percent over the coming year.

But while the average prediction is higher through the first quarter of 2024, analysts expect stocks may still undergo a lot of volatility between now and then.

“We believe that a recession will take place in the second half, and given the equity market’s tendency to bottom just before or right around recessions, we think a second-half bottom or recovery in equity markets is the most likely scenario,” says Sameer Samana, senior global market strategist, Wells Fargo Investment Institute.

The expectation of a near-term recession was shared by other analysts, despite their bullishness over the next year.

But as for when a bull market might begin, analysts were divided, with some even saying the bull run has already begun:

46 percent said that a new bull market may begin in the second half of this year.
23 percent said that a new bull market has already begun or will begin in the first half of this year.
15 percent said a new bull market will begin next year (2024).
8 percent said that it may be sometime after 2024 when a new bull market begins.
8 percent offered no comment.

“Since 1890 there have been 25 bear markets that have all been accompanied by recessions,” says Hugh Johnson, chief economist, Hugh Johnson Economics. “Bear markets ended and bull markets began during 23 of the 25 recessions. I anticipate a recession in Q2-Q4 and a bear market end during that time frame.”

Many eyes are on how the Federal Reserve adjusts interest rates, since that signals more favorable monetary policy and an end to the highly restrictive policy that began in March 2022.

“As inflation returns to target and the Fed normalizes rates to its long term target, strong domestic and global growth will create a robust backdrop for U.S. equity outperformance,” says Dec Mullarkey, managing director, SLC Management. “Dollar strength should fade, which is positive for overseas revenue growth for U.S. companies.”

Experts less optimistic about five-year stock returns

The survey respondents were quite a bit less optimistic in their expectations for the market over the next five years, compared with their expectations in the fourth-quarter survey. Nearly half of the analysts surveyed said they expect lower-than-normal returns over the next half-decade:

About 46 percent say returns will be lower than long-term returns.
About 38 percent of respondents say returns will be about the same as their historical average over the next five years.
About 15 percent say returns will be above the historical average.

The results showed a big shift from the fourth quarter to the first quarter. Many analysts moved from expecting historically similar results in the last survey to lower-than-normal results in this one.

“Until we see better valuations, equities are at best fairly valued,” says Samana. “Unfortunately, a recession in the second half will not be kind to risk assets, which should mean lower-than-average returns over the coming five years.”

Among those expecting lower future returns, count Sam Stovall, chief investment strategist, CFRA Research. “Higher interest rates, oil prices, and valuations will likely hold back equity price appreciation,” he says.

On the other hand, Mullarkey expects higher-than-normal returns over the next five years and points to broader monetary reasons for his optimism.

“U.S. and global equities will surge as economies return to a stable inflation regime and central banks return to their traditional role of guardians of stable monetary policy rather than lead agents in driving market conditions and sentiment,” says Mullarkey.

U.S. stocks remain the place to be, say pros

Experts continue to prefer U.S. stocks to their international counterparts over the next 12 months, as they did in the prior survey. Here’s how the numbers break down:

About 69 percent of respondents favor U.S. stocks in the coming year.
Just 15 percent prefer international stocks.
Only 7 percent said the returns between the two would be about the same.

In the fourth-quarter survey, 71 percent said they preferred domestic stocks.

“The legal and financial structure of the U.S. positions itself for growth,” says Kim Forrest, chief investment officer and founder, Bokeh Capital Partners.

“With the rising risk of recession, the safe haven (U.S.) will likely outperform,” says Stovall.

And Sameer Samana echoes that logic, saying: “We still believe the U.S. equity market is of higher quality, and less economically sensitive than its international peers, which will allow it to be a port in the storm during a recession.”

Growth stocks now preferred over value stocks

While these investment pros stuck to their preference for U.S. stocks, they flipped in their preference for growth stocks and value stocks, seeing growth equities as the better pick now. Value stocks fell significantly in the estimation of survey respondents.

About 46 percent of respondents prefer growth stocks to value stocks over the next year.
About 31 percent favor value stocks to outperform growth.
About 23 percent think returns will be about the same.

That was a significant decline for value stocks since last quarter, when a whopping 71 percent picked them to outperform growth stocks. Meanwhile, growth stocks gained the favor of 46 percent of the pros, compared to just 21 percent in the fourth-quarter survey.

“Value should do better during a period of elevated rates and energy prices, both of which we see sustaining for the remainder of the year,” says Samana.

But others see the rise in interest rates beginning to top out, making growth stocks a more attractive prospect.

“Growth will dominate as inflation comes under control with the Fed on hold and contemplating rate cuts,” says Mullarkey. “A firming economy will provide opportunities for both earnings and multiple expansion. Technology will continue to lead.”

Others see opportunities regardless of whether value or growth leads the way.

Jim Osman, founder, The Edge Group, thinks “any companies going through corporate change which have hidden value” will remain attractive winners.

Methodology

Bankrate’s first-quarter 2023 survey of stock market professionals was conducted from March 17-24 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Jim Osman, founder, The Edge Group; Louis Navellier, CIO, Navellier & Associates, Inc.; Dec Mullarkey, managing director, SLC Management; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Marilyn Cohen, CEO, Envision Capital; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Hugh Johnson, chief economist, Hugh Johnson Economics; Sam Stovall, chief investment strategist, CFRA Research; Chuck Carlson, CFA, CEO, Horizon Investment Services; Brad McMillan, chief investment officer, Commonwealth Financial Network; Clark A. Kendall, CFA, CFP, president and CEO, Kendall Capital.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.