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UBS Sees S&P 500 Hitting 5,000, Finishing 2022 at 4,850

While Federal Reserve interest-rate hikes may be a negative for the market, the runup to them is not, says UBS's Keith Parker.
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UBS Chief Equity Strategist Keith Parker sees the S&P 500 reaching a record 5,000 in the first half of 2022, before falling back to end the year at 4,850.

While Federal Reserve interest-rate hikes may be a negative for the market, the runup to them is not, he said, according to CNBC.

Since 1950, The S&P 500 has appreciated 12.5% on average in the 12 months prior to the Fed’s first rate hike. Many economists expect the first rate hike to occur around midyear.

Despite all the hubbub over the omicron Covid variant, an easing of the pandemic also should help stocks in the first half, Parker said.

“Covid cases continuing to fall through the early summer, and more importantly a falling death rate, should boost equities,” he said.

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But in the second half of the year, sustained rate hikes, inflation and slowing earnings growth will likely make their mark on stocks, Parker said.

“The Fed outlook will be critical for equities in 2022, and our machine learning model shows that the [federal] funds path is currently the most important driver of markets,” he wrote.

“Continued tightening of financial conditions coupled with weak earnings momentum and probable second-half earnings downgrades are likely to lead to a more meaningful derating.”

To be sure, uncertainties abound, Parker noted.

A move to 5,000 by the S&P 500 would represent an 8.5% gain from the recent level of 4,610. 

A move back to 4,850 would represent a 3% dip from that peak, but would still be 5% higher than the recent level.