Macro Research US equities 2022 outlook: Can S&P 500 cont | FSMOne SG - Research Highlights

Macro Research

US equities 2022 outlook: Can S&P 500 continue its run?

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• Valuations are stretched, leaving little room for risk. S&P 500 Index is trading at (i) a 28% premium to its historical average and (ii) at larger-than-average premiums relative to other DMs. Risks for a valuation contraction has risen and earnings disappointment could be a likely trigger.

• While earnings have rebounded significantly this year (51% YoY), growth has likely peaked and should normalise moving ahead. US companies are also facing mounting cost pressures from higher wages and material costs which will pressure margins in the coming quarters.

• Earnings revision momentum is running out of steam. Positive earnings revisions for S&P 500’s top five largest sectors (by earnings contribution), have started to flatten in the last quarter. Big Tech is increasingly at risk of earnings disappointment which can pose a risk to aggregate US equity performance.

• Elevated valuations should limit upside potential. We project a target price of 4940 for S&P500 index by end-2023 which implies a 5% upside potential. US equities are increasingly less attractive and we maintain a 2.5 Stars “Neutral” rating for the region.

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