Need to Know: Stock investors should ‘focus on the marathon, not the sprint’. Think S&P 500 at 6,000 by 2032, says BofA


A rally for China stocks, following a few tweaks in the government’s unpopular and to some, ineffective, zero COVID policies, doesn’t seem to be doing a ton for Wall Street on Tuesday.

Futures are a little higher, but perhaps overshadowing gains are pivot hopes on ice, after New York Fed President James Bullard said markets have underestimated how aggressive the central bank needs to be to get inflation under control.

Read: It’s wishful thinking that stocks will soar before the Fed pivots to lower rates

Guessing Fed moves will be among the many hurdles facing investors in 2023, according to crystal-ball gazing we’ve seen thus far. Deutsche Bank said Monday that a U.S. recession next year will pummel stocks, though they see a recovery likely by end-2023.

But maybe don’t get too carried away by the word recovery. Goldman sees a “hope” phase kicking in next year, but the S&P 500 finishing around 4,000, while Morgan Stanley expects a “terrific” first quarter buying opportunity, but a finish at 3,900. Both end goal posts are not far off where we are currently.

Our call of the day comes from Bank of America, which tosses its own forecasts into the ring, as they mix worries with encouragement about keeping an eye on the long-term prize.

“Focus on the marathon, not the sprint,” said a team led by Savita Subramanian, head of U.S. equity & quantitative strategy. Their 2023-end target is also 4,000, with a bear case of 3,000, as they say near-term pain from company earnings should be expected.

BofA’s S&P 500 earnings per share forecast is $200, a number 15% below other Wall Street estimates. And returns ahead of earnings revision troughs have often been “deeply negative,” cautions Subramanian.

“But the best phase is that which follows — low but rising earnings revisions ratios. The market typically bottoms six months before the end of a recession, so buy in 1H based on our economists forecast of the recession ending by 3Q 2023,” she said. Their bull case for the S&P 500 is 4,600, based on the contrarian signal of a very bearish Wall Street.

What to own? While “2022 was all about the Fed, 2023 is about the real economy. Own quality, income, reshoring, green and brown [renewables and fossil fuels], small-caps,” is Bofa’s key advice. Cyclical factors, such as slower growth, are part of the reason investors need to seek out quality stocks.

She advises focusing on income and defense, saying if bonds do well, utilities will follow, and have lifted their view on the sector to overweight. Healthcare was cut to marketweight on risk of crowding by investors, while communication services “appears to be a value trap.” They cut tech to underweight owing to cyclicality and de-globalization risks.

The key risks ahead for BofA lie in that old cliché “it is different this time.” They see liquidity risk in “odd places” — the S&P 500 (“the most crowded ticker in the world”) and Treasury bonds, unprecedented public sector debt and polarized polities ahead, along with sticky, high inflation. The silver lining to that debt is that companies look far better capitalized than in prior recessions.

They are also worried about a “wealth effect on steroids,” noting that the $22 trillion lost in equities, bonds, cryptocurrency and real estate this year would equal a $700 billion hit to consumption, “which represents about 4% of total current consumption, plus or minus.”

BofA lays out its recession worries, clearly: “Since COVID idiosyncratic risk in the market has dropped, and average pair-wise stock correlations surged in 2022. The biggest rate shock in history, the most aggressive hiking cycle, the biggest inflationary pressure in 40+ years, rising recession fears, wartime and ongoing geopolitical risks, urgency building around carbon emission reduction suggest macro will loom large in 2023,” they said.

The bright side? BofA wants investors to look past the near term and into what could be a much brighter future ahead. “Our 10-year valuation model suggests that even if you buy today, you will enjoy [roughly] 5% price returns…pushing the S&P 500 to 6,000 by 2,032,” said Subramanian and the team.

The markets


Stock futures



are slightly higher, with bond yields


softer and oil prices


rising. The dollar

is lower and gold

is higher. Asia markets rebounded as China protests eased, with Hong Kong’s Hang Seng Index

up 5.2%.

Read: Energy stocks look ‘especially vulnerable’ to crude-oil selloff

For more market updates plus actionable trade ideas for stocks, options and crypto, subscribe to MarketDiem by Investor’s Business Daily.

The buzz

Protests died down across China overnight, with heavy police presence and some university students sent home. Markets got a lift after a meeting by China’s National Health Commission announced plans to get more elderly vaccinated and shorten time between boosters.

Home prices from S&P Case-Shiller and the Federal Housing Finance Agency are due at 9 a.m., followed by the consumer confidence index at 10 a.m. Eastern.

There’s a smattering of deal news. Royal Bank of Canada

will acquire HSBC Canada


for C$13.5 billion ($10.1 billion) in cash. Apollo Endosurgery shares

are surging 61% in premarket on news of a $615 million deal to buy the company by Boston Scientific

A record-breaking $11 billion was spent on Cyber Monday, said Adobe
as shoppers snapped up bargains.

Iran reportedly threatened the families of its national team players ahead of the important World Cup match later against the U.S.

Read: Qatar World Cup: How much prize money is at stake?

Best of the web

France is bringing back working horses to fight climate change

More than a game. An American and an Iranian fan talk about opportunities for “better bonds”

A pattern repeats in Kherson Ukraine. Russians retreat, leaving evidence of war crimes.

The chart
The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern:


Security name






AMC Entertainment Holdings






Cosmos Holdings


Mullen Automotive



Bed Bath & Beyond



Random reads

How Qatar found and trained up some “ultra fans”.

Actor Will Smith blames “bottled” rage for slapping comedian Chris Rock earlier this year.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton

Outside the Box: More risk doesn’t always mean greater reward. Just look at these imploded tech stocks.

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