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Friday, May 13, 2022

Wall Street’s most bearish 2022 forecast was bullish. It always was.

As of 2022, Morgan Stanley stood out on Wall Street for predicting that stocks would fall next year.


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In a customer letter, dated November 14, 2021, the company predicted that the S&P 500 would slide to 4,400 by the end of 2022. At the time, this price meant a 6% decrease in S&P. It was a very bearish prediction among prominent Wall Street firms.


The following Friday, I spoke to Julie Hyman and Brian Sozzi. Here is what I said:


“... a 6% decrease in one year is undoubtedly on the rise. Because if you look at market history, in the middle of the year, the S&P 500 will see a decline - a sharp decline - of about 14%. And that even in the bull markets. So, if we have a bull market when we have a year where the market is down by only 6% from top to bottom, that is actually the best thing you can say ... ”


Markets have a long history of short-term volatility. Therefore, for those who are unfamiliar with the market history, the 6% decline always looks wrong.


This year, I think most investors would enjoy a 6% reduction. The S&P reached 4,818.62 on January 4, and fell 20% to 3,858.87 on Thursday. The S&P will need to rise by 12% from close to Thursday to reach Morgan Stanley's 4,400 year end target.


In fact, most weather forecasters have warned that 2022 may be even bigger than 2021. Based on the volume of forecasts updated in recent weeks, it is clear that almost no one has seen the coming of this year's sales.


Indeed, Goldman Sachs, JPMorgan, UBS, RBC, Barclays, Bank of America, Credit Suisse, and Jefferies all reduced their forecasts during the market movement.


The point of all of this is not to say, "I told you so." Instead, it is a reminder that no one should be surprised to see a two-digit short-term loss in their equity portfolio.


Accepting that the market is volatile is what investing is all about. It is the number of investors who pay for long-term wealth. Market history can be very helpful in setting expectations. So, read on. You are less likely to make a financial mistake if you understand how bad things can get in the short term.

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