Stock Market

Wells Fargo’s investment arm cuts outlook for stocks, now sees longer U.S. recession ahead – News Opener

Investors should brace for the start of a U.S. recession in the second half of 2022 and for the stock market to record a roughly 20% retreat for the full year, according to a revised outlook from the Wells Fargo Institute released Thursday.

Strategists at the banking giant’s investment management unit now expect a roughly year-long U.S. recession to take hold relatively soon, with it lasting through mid-2023.

They also expect inflation to stay high, ending the year at 7.7% and for the S&P 500 index
SPX,
+1.50%
,
which fell into a bear market in June, to end the year roughly 20% below its peak in early January. Other key revisions to their outlook for global equities can be found in the below chart.

Wells Fargo Institute strategists cut S&P 500 year-end target


Wells Fargo Investment Institute

“We have been noting for most of the year that the U.S. economy is slowing faster than most realize,” Well’s global investment strategy team wrote, adding that while in May they anticipated a mild recession to take hold in late 2022, that “the plain reality is that the trends are worsening faster.”

Read: Markets signal recession threat: Why that’s not devastating for stocks right now

To that end, the team lowered its year-end forecast for the S&P 500 to a range of 3,800-4,000, down from 4,200-4,400 previously. On Thursday, the stock index closed at 3,902.62, representing a 18.1% decline so far in 2022, according to FactSet data.

“While investors slowly digest the lurch toward reduced 2022 earnings projections, additional near-term equity market volatility is very likely,” the team wrote. But they also see a moderate recession akin to the 1981-82 downturn, with a “sustained economic and earnings recovery for most of 2023 and 2024.”

They also urged investors to have patience and to avoid “selling into a downturn” that can lock in losses, particularly with equities already seeing the worst start to a year in about a half-century.

U.S. stocks finished higher Thursday, but with the Dow Jones Industrial Average
DJIA,
+1.12%

still down 13.6% for the year and the Nasdaq Composite Index
COMP,
+2.28%

off 25.7% since January.

See: The Dow just booked its worst first half since 1962. What history says about the path ahead

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