Industry Analysts Predict a 13% Price Increase for S&P 500 in 2023

With 2022 coming to a close, analysts are making predictions for the closing price of the S&P 500 for next year. These predictions vary widely, as market strategists (typically using a top-down approach) are divided as to whether believe the S&P 500 will close above or below 4,000 at the end of 2023.

Where do industry analysts (using a bottom-up approach) believe the S&P 500 will close at the end of 2023?

Industry analysts in aggregate predict the S&P 500 will have a closing price of 4,493.50 in 12 months. This bottom-up target price for the index is calculated by aggregating the median target price estimates (based on the company-level target prices submitted by industry analysts) for all the companies in the index. On December 8, the bottom-up target price for the S&P 500 was 4,493.50, which was 13.4% above the closing price of 3,963.51.

At the sector level, the Consumer Discretionary (+27.0%) and Communication Services (+25.2%) sectors are expected to see the largest price increases, as these sectors have the largest upside differences between the bottom-up target price and the closing price. On the other hand, the Consumer Staples (+3.4%), Materials (+4.2%), and Utilities (+4.7%) sectors are expected to see the smallest price increases, as these sectors have the smallest upside differences between the bottom-up target price and the closing price.

At the company level, the ten stocks in the S&P 500 with the largest upside and downside differences between their median target price and closing price (on December 8) can be found on page 9.

However, it is important to note that industry analysts have historically overestimated the closing price of the index at the start of the year.

At the end of last year (December 31, 2021), the bottom-up target price for the S&P 500 was 5,264.51. Based on yesterday’s closing price of 3,963.51, analysts overestimated the price of the index by 33% at the start of CY 2022 as of yesterday.

Over the previous 20 years (2002 – 2021), the average difference between the bottom-up target price estimate at the beginning of the year (December 31) and the final price for the index for that same year has been 8.3%. In other words, industry analysts on average have overestimated the final price of the index by about 8.3% one year in advance during the previous 20 years. Analysts overestimated the final value (the final value finished below the estimate) in 13 of the 20 years and underestimated the final value (the final value finished above the estimate) in the other 7 years. It is interesting to note that analysts have underestimated the final value in six of the past nine years (2013 – 2021).

However, this 8.3% average includes two years (2002 and 2008) in which there were substantial differences between the bottom-up target price estimate at the start of the year and the closing price for the index for that same year. In 2002, industry analysts at the start of the year overestimated the closing price for the end of the year by 59%. In 2008, industry analysts at the start of the year overestimated the closing price for the end of the year by 92%. If the years 2002 and 2008 were excluded, the average difference (over the other 18 years) between the bottom-up target price at the start of the year and the closing price of the index at the end of the year would be 0.8%.

If one applies the average overestimation of 8.3% to the current 2023 bottom-up target price estimate (assuming the estimate changes little between now and December 31), the expected closing value for 2023 would be 4,122.36, which is 4.0% above yesterday’s closing price of 3,963.51. If one applies the average overestimation of 0.8% (excluding 2002 and 2008) to the current 2023 bottom-up target price estimate, the expected closing value for 2023 would be 4,458.05, which is 12.5% above yesterday’s closing price of 3,963.51.

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