Stock market forecasts are getting grim: Grantham, Siegel, Wilson

• Market experts including Marko Kolanovic, Jeremy Siegel and Lisa Shalett have warned that US stocks are moving into a danger zone.
• Banking turmoil and the risk of a recession have fueled some of the recent pessimistic market forecasts.
• Here’s a selection of the most recent stock market forecasts from high-profile investors, analysts and other experts.

US equities have posted impressive gains so far in 2023, despite banking chaos and rising economic pessimism, surprising forecasts who had been bearish at the start of the year.

And now, as the second quarter rolls on, experts are reassessing the situation and updating their forecasts to account for a slew of emerging risks — from a credit crunch and commercial real estate risks to ongoing jitters in the financial sector and the imminent risk of a recession.

JPMorgan’s Marko Kolanovic, Morgan Stanley’s Lisa Shalett and FS Investments’ Troy Gayeski are among those who have warned that US stocks are now entering a danger zone, while Ed Yardeni believes there is too much pessimism about the economy.

Here’s a selection of the most recent stock market forecasts from high-profile investors, analysts and other experts.

Jeremy Grantham, veteran investor

The S&P 500 is likely to fall 27% to 52% from its current level of 4,130, Grantham said in a recent interview.

“The best we can hope for is that this market would bottom out at around 3,000,” he said. “The worst we should fear is over 2,000.”

Knowing this may sound extreme, Grantham noted that the benchmark index reached 666 points in 2009, meaning if it gets to 2,000 points this time, it will still have tripled in the last 14 years.

Troy Gayeski, chief market strategist at FS Investments

According to FS Investments’ chief market strategist, the stock market could face a major setback, sending the S&P 500 down about 22% over the next few quarters, and investors should start selling their holdings immediately.

“There’s no reason to wait. It’s not like leaving 10% upside down on the table,” Gayeski said on a recent episode of the Podcast “What’s Going Up”.. “This is a golden opportunity to use this bear market rally to reduce risk ahead of potentially very painful losses over the next six, nine, 12 months.”

Marko Kolanovic, chief market strategist at JPMorgan

According to JPMorgan, stock markets are underestimating the risk of an economic slump this year and even a mild recession would send stocks down 15% or more from current levels.

“On the other hand, even a mild recession would warrant retesting the previous lows and result in a downtrend of more than 15%,” strategists led by Kolanovic wrote in an April 17 note. “We therefore maintain a defensive stance in our model portfolio this month, unchanged from last month, with an underweight position in equities and an overweight position in cash.”

Jeremy Siegel, Wharton Professor

The banking turmoil threatens the economy as a whole and stocks are poised to collapse in the coming weeks, Siegel warned in his WisdomTree Commentary this week. The author of “Stocks for the Long Term” warned that the market could be nearing a peak if investors follow the famous investment adage and “sell in May and go.”

“I see a bit more pressure in the near term,” he wrote. “For now, it remains prudent to be cautious on short-term equities, but I’m still very bullish on the longer term.”

Lisa Shalett, chief investment officer (wealth management) at Morgan Stanley

“The stock bear market rally continues, but much of the good news about Federal Reserve rate hikes, falling headline inflation and lower real interest rates has been discounted,” she wrote in a Monday note.

“Priced in a lot of optimism, especially around the sustainability of low interest rates supporting extreme valuations, we are entering a dangerous phase.”

Mike Wilson, Chief Strategist US Equities, Morgan Stanley

Investors risk being disappointed during the ongoing stock market rally because earnings expectations are overly optimistic, Wilson said.

“If there’s one thing that could throw cold water on the big megacap rally, it’s higher yields thanks to a Fed that can’t stop hiking as soon as some investors might expect… This is the market’s way of warning us that we are far from out of the woods with this bear market.”

Ed Yardeni, president of Yardeni Research

Of course, not everyone is a stock market pessimist.

Investors could miss out on potential stock market gains if they become too suspicious of the U.S. economy, which is likely to avoid an outright recession, Yardeni said as the S&P 500 moved one step closer to entering a bull market.

“I’ve been one of the bulls, especially at the end of October. I thought there was way too much pessimism in some of these market confidence surveys, about as much pessimism as we saw in March 2009. It’s nowhere near as bad as that,” he shared CNBC on Monday.