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UBS analysts told investors in a note Tuesday that they are targeting 3900 for the S&P 500 at the end of 2023.
They said that with UBS economists forecasting a US recession for Q2-Q4 2023, the setup for 2023 “is essentially a race between easing inflation and financial conditions versus the coming hit to growth+earnings.”
“History shows that growth and earnings continue to deteriorate into market troughs before financial conditions ease materially. We see 3200 in Q2 on 14.5x forward EPS of $220 as a reasonable trough assuming further cuts to estimates in line with a pre-recession pace. A fall in Baa corp yields (spread+10y) after the Fed cuts notably in Q3 would start the equity recovery,” the analysts wrote. “We target 3900 for the S&P 500 at the end of 2023 based on EPS of $215 in 2024, in line with trend levels, and a fair value forward P/E of 18x, which assumes a US 10y yield of 2.65%.”
In addition, UBS set a target of 4400 for the end of 2024 based on the 10% EPS growth expected and a slightly higher P/E as yields fall more.
“We forecast 2023 EPS to fall >11% to $198 with margins declining below 2020 levels for S&P ex Fins/Energy on much higher ULCs. Consensus ’23 and ’24 EPS should come down by over 15% but the low in NTM EPS is likely at the end of ’24,” the analysts added.
