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Wall Street SPX 2023 Forecasts and Technical Outlook

To know is to know that you know nothing. That is the meaning of true knowledge – Socrates


To Know what you know and what you do not know, that is true knowledge – Confucius


The more you know, the more you realize you don’t know – Aristotle


Opinion is the medium between knowledge and ignorance – Plato


Those who have knowledge, don’t predict. Those who predict, don’t have knowledge – Lao Tzu


Yes, we all want to know the future because the world is obsessed with predictions. The above quotes from the greatest philosophers suggest we have difficulties in understanding the past and forecasting the future is unknowable. The only safe prediction is every prediction about the future is unknown.

With the above thoughts in mind, are Wall Street 2023 projections for S&P 500 Index (SPX):


3,675 (Barclays), 3,800 (Societe Generale, Capital Economics), 3,900 (Morgan Stanley, UBS, Citi), 4,000 (BofA, Goldman Sachs, HSBC), 4,050 (Credit Suisse), 4,100 (RBC), 4,200 (JPMorgan, Jeffries), 4,300 (BMO), 4,300-4,500 (Wells Fargo), and 4,500 (Deutsche Bank).

The average of the 16 Wall Street targets is 4,045, the median is 4,000, and the mode is 3,900 and 4,000.


A brief review of the forecasts suggests a wide 825 range, implying a high degree of uncertainties and market volatility for next year. SPX closed on 12/8/22 at 3,963.51, indicating returns between -7.28% and 13.54%.


Based on the S&P 500 Dividends Reinvested Price Calculator, the historical average annualized average return in SPX since its inception in 1926 is 10.06% (dividends reinvested) and 6.09% (ex-dividends). The historical average annual return adjusted for inflation return falls to 6.86% (dividends reinvested) and 3.01% (ex-dividends).


S&P 500 Index has declined 16.84% yearly, significantly below historical averages. Although further losses are possible for next year, historical tendencies suggest the stock market may begin to bottom next year. The caveat to this call remains whether a shallow or deep recession occurs next year.


One of the premises of the technical analysis discipline is the stock market discounts everything. All news and developments are often already priced into the stock market.


After all, the stock market price reflects the sum of knowledge of all participants, including traders, investors, portfolio managers, smart money, retail money, etc.


If everyone is projecting a specific SPX target the market will have already anticipated this, and the projected target will either be achieved sooner than expected or not at all.


Technical outlook of SPX for next year:


A rare but important descending broadening wedge pattern hints at an explosive move for SPX is likely next year. A descending broadening wedge is historically a bullish chart that often leads to a reversal pattern. Two diverging trendlines in the same direction (downtrend) inform the investors that the price continues to fall with decreasing tendencies. The upper line corresponds to the resistance line. The lower line represents the support line. A descending broadening wedge is confirmed on a surge above the upper line or resistance line. A breakdown occurs via the violation of the lower line or the support line.


Suppose the SPX Index descending broadening wedge appears after a trough. In that case, it is typically a bullish reversal pattern where the top of the formation (4,818.62) is the price objective on a convincing breakout above 4,132-4,325 (top of broadening wedge and the 8/16/22 reaction high).


Suppose the SPX Index descending broadening wedge appears after a peak. In that case, this pattern signals a correction within a bullish longer-term trend or a bullish continuation pattern. Violation of 3,393.5-3,491.58 (Aug 2020 V-pattern breakout and the 10/13/22 reaction low) warns of a decline toward the bottom of the descending broadening wedge trend line or 3,019. Like the above scenario, the resumption of the bullish trend occurs on a convincing breakout above the top of the broadening wedge/lower-high at 4,132/4,325. The price objective is typically the height of the pattern (i.e., 4,818.62-3,213 or 1,587.62) added to the breakout (4,132) or SPX target at 5,720, longer term.


In summary, the 16 Wall Street firms show an average SPX projection of 4,045 for next year. suggesting nominal gains of 2.06%. The technical outlook is complicated. Although a descending broadening wedge is typically a bullish pattern, the outcome over the near-to-intermediate term remains indecisive. A convincing move above 4,132-4,325 confirms a breakout, signaling a retest of 4,818.62 (1/4/22 all-time high) and above this 5,720 (longer-term). However, a breakdown below 3,393.5-3,491.5 warns of an SPX decline to 3,019-3,234. Will this mark the end of the Jan 2022 cyclical bear decline and the start of the next bull rally?


Chart courtesy of StockCharts.com

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