Survey: Analysts foresee 12% rise in stock market over next 12 months

The stock market has had a tumultuous 2022 so far, with major indices such as the S&P 500 and the Nasdaq Composite in bear market territory. But according to market professionals surveyed in Bankrate’s Third-Quarter Market Mavens survey, the outlook for stocks should improve over the coming year. The group of experts foresees a 12 percent increase in the S&P 500 over the next 12 months, the eighth consecutive quarter the survey has predicted positive returns.

The survey’s respondents expect the S&P 500 to rise to 4,335 over the next year, up from 3,873.33 when the survey period ended on Sept. 16, 2022. The experts prefer U.S. stocks over international markets, but are split on whether value or growth will perform better.

“It’s a hopeful sign that despite the emergence of a bear market this year, our survey participants see upside for stocks over the next year and in the coming years,” says Mark Hamrick, Bankrate’s senior economic analyst. “They tend to be optimistic by trade to some degree, but they do see support for the market as a group.”

“For the typical long-term investor, slow and steady wins the race,” says Hamrick. “Exposure to equities has historically provided superior long-term returns. Since most Americans are ‘in the market’ for the purpose of saving for retirement, it is critically important to stay invested because predicting the timing of a positive turn in the market is virtually impossible.”

Forecasts and analysis:

This article is one in a series discussing the results of Bankrate’s Market Mavens third-quarter survey:

• Analysts foresee 12% rise in stock market over next 12 months
• Pros say the 10-year Treasury yield to hold steady
• With rates rising, here’s where experts say to invest now

Stocks expected to rise over the next 12 months

Stock investors have struggled mightily this year, with both the S&P 500 and Nasdaq down more than 20 percent from their highs and the Dow Jones Industrial Average down nearly 20 percent. Markets have pulled back as investors grapple with rising interest rates, high inflation and the possibility of a recession on the horizon. Stocks rallied during the summer before falling again, as the hope for a possible reprieve from high inflation failed to materialize and the Federal Reserve raised interest rates by 0.75 percent for the third consecutive meeting in September.

The market experts have been consistently positive about the outlook for stocks during the year despite the difficult environment. They expect the market to increase about 11.9 percent over the next 12 months, compared with 12.3 percent in the second-quarter survey and 11.4 percent in the first-quarter survey.

Not a single analyst surveyed predicted the market would fall over the next year, with the least bullish analyst predicting a rise of only 2.6 percent. The most bullish prediction was for an increase of nearly 21 percent, while the average predicted level for the S&P 500 a year from now was 4,335.

“Over the next year, inflation and central bank tightening will have peaked, which historically has been a catalyst for an equity rally,” says Dec Mullarkey, managing director of investment strategy and asset allocation at SLC Management. “The coming year will be volatile, but the average investor should stay committed to their long-term investment mix.”

Most analysts expect five-year stock returns in line with the historical average

The survey’s respondents largely expect returns over the next five years to be in line with historical averages. Fewer experts expect lower-than-normal returns over the next five years than they did in the previous survey.

Here’s how the numbers break down:

• About 46 percent of respondents say returns will be about the same as their historical average over the next five years.
• About 27 percent say returns will be lower than long-term returns.
• About 27 percent say returns will be above the historical average.

The numbers show a slight improvement in the experts’ outlook compared to the previous survey when about 42 percent expected returns to be lower-than-normal over the next five years. The market’s decline has made valuations somewhat more attractive, slightly raising future expected returns.

“Valuations are neither overly cheap nor overly expensive, which sets the stage for returns close to historical averages,” says Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute.

“Given the decline this year, there has been a reset in the market, which should make average returns attainable over the next five years,” says Horizon Investment Services CEO Chuck Carlson.

Not everyone is optimistic that the worst is over for investors, however.

“The economy now seems focused on delivering better pay to workers and is less able to exploit the low-wage global economy,” says Robert Brusca, chief economist at Fact and Opinion Economics. “The ‘golden age’ of stocks is over.“

On the other side of the spectrum is SLC Management’s Mullarkey, who sees investments and technological advances driving returns higher than normal in the coming years.

“The next five years will see more capital investment from companies and countries as they near- and on-shore more of their supply chains and invest more in sustainable energy solutions,” he says. “This should motivate a cycle of innovation in new technologies.”

U.S. stocks still favored over international stocks

The analysts surveyed by Bankrate still overwhelmingly prefer U.S. stocks over international stocks for the next 12 months. Here’s a breakdown of the responses:

• About 91 percent of respondents favor U.S. stocks in the coming year.
• Not a single analyst surveyed prefers international stocks.
• Around 9 percent said the returns between the two would be about the same.

In the previous quarter’s survey, 58 percent preferred U.S. stocks, 17 percent favored international stocks and 25 percent said the returns would be about equal.

The experts’ strong preference for U.S. stocks appeared to be at least partially due to their relatively negative outlook for international economies.

“The United States continues to be in a position of strength relative to global economies,” says Wayne Wicker, chief investment officer at MissionSquare Retirement. “From a geopolitical perspective, we view Europe as vulnerable to a range of issues that would result in much weaker fundamentals over the next year. This will have a related negative impact on emerging-market economies which will also lag returns in domestic markets.“

Kim Caughey Forrest, chief investment officer at Bokeh Capital Partners, said she views U.S. stocks as the “best house in a very bad neighborhood.”

Brusca was the lone analyst to express any positive sentiment toward international markets, saying he sees lots of upside in Japan in part due to the weak yen.

Experts split on value vs. growth stocks over coming year

In a shift from the second-quarter survey, the experts are now split on whether value stocks or growth stocks will outperform over the next year. Those who prefer value stocks cited rising interest rates as a headwind to growth stocks, while those who favor growth stocks think interest rates may be peaking. Here’s a breakdown of the responses:

• About 36 percent of respondents prefer value stocks to growth stocks over the next year.
• Around 36 percent favor growth stocks to outperform value.
• About 27 percent think returns will be about the same.

This survey snaps a streak of seven consecutive quarters where value stocks were preferred over growth stocks.

“We think the current regime of tightening policy and higher rates will pose a headwind to higher multiple growth stocks, especially in the consumer discretionary and communication services sectors,” says Wells Fargo’s Samana. “That should lead to value-oriented areas such as energy and health care having a better chance to outperform.”

But Horizon’s Carlson thinks the period of Fed tightening may be coming to an end.

“I see interest rates moderating or declining over the next year, as will inflation,” he said. “These work to the advantage of growth stocks.”

However, MissionSquare’s Wicker thinks it’s not as simple as choosing between growth and value investing styles.

“With rising interest rates, investors will need to be more selective within sectors,” he said. “The era of just buying growth or value is probably behind us for the near term as uncertainty in economics will require more company-specific focus.”

Methodology

Bankrate’s third-quarter 2022 survey of stock market professionals was conducted from September 8-16 via an online poll. Survey requests were emailed to potential respondents nationwide, and responses were submitted voluntarily via a website. Responding were: Dec Mullarkey, managing director, SLC Management; Brad McMillan, chief investment officer, Commonwealth Financial Network; Kenneth Chavis IV, CFP, senior wealth manager, LourdMurray; Kim Caughey Forrest, chief investment officer/founder, Bokeh Capital Partners; Chuck Carlson, CFA, CEO, Horizon Investment Services; Robert A. Brusca, chief economist, FAO Economics; Sam Stovall, chief investment strategist, CFRA Research; Hugh Johnson, chief economist, Hugh Johnson Economics; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Wayne Wicker, chief investment officer, MissionSquare Retirement; Louis Navellier, CIO, Navellier & Associates, Inc.

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.