Inflation, Recession, Rates, Oh My! Brace Yourself for This S&P 500 Prediction

S&P 500 prediction - Inflation, Recession, Rates, Oh My! Brace Yourself for This S&P 500 Prediction

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Bank of America (NYSE:BAC) Chief Investment Strategist Michael Hartnett provided its clients with an S&P 500 prediction that sees the index fall below 4,000 by the end of 2022. At 4,493 currently, this amounts to an 11% decline over the remainder of the year. It would be the worst year for the index since 2008. Hartnett’s argument centers around ongoing inflationary pressures combined with higher interest rates to send the country into a recession. At the same time, Hartnett sees the 30-year Treasury yield rising above 4% sometime in 2023. It hasn’t been this high since April 2011Any way you slice it, the next eight months will be incredibly difficult for retail investors. 

Given the various headwinds facing the economy, the wise thing is to move into quality stocks that have rock-solid balance sheets with loads of cash and little or no debt. Danish bank Saxo Bank discussed the equity situation in its second-quarter 2022 outlook on Apr. 5. Saxo Bank’s Head of Equity Strategy, Peter Garnry, believes that today’s inflationary pressures are very similar to those encountered in the 1970s. As a result, a particular type of company is required to ride out the current environment. 

“High inflation is essentially a tax on capital and raises the bar for return on capital, and thus inflation will filter out weaker and nonproductive companies in a ruthless fashion,” Marketwatch reported Garnry’s comments. Investors should be looking closely at their stock portfolios to ensure they’re holding companies with sound balance sheets, while also demonstrating strong productivity, exceptional innovation, and absolute pricing power. 

In other words, you want to be invested in businesses that possess large moats that won’t be as affected by these turbulent times. For example, look at Garnry’s list of companies meeting Saxo Bank’s productivity and innovation criteria. You’ll see that there are a lot of excellent names on the list, including Apple (NASDAQ:AAPL), considered to be the most productive company in the world.

Whether Bank of America’s prediction comes to fruition, it can’t hurt to revisit your portfolio for any ugly ducklings that might harm your overall performance in 2022 and beyond. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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