Industry Analysts Predict the S&P 500 Will Close Above 5,200 in 2022

With 2021 coming to a close, analysts are making predictions for the closing price of the S&P 500 for next year. A number of market strategists (typically using a top-down approach) believe the S&P 500 will close at or above 5,000 by the end of 2022. Do industry analysts (using a bottom-up approach) also believe the S&P 500 will close at or above 5,000 at the end of 2022?

The answer is yes. Industry analysts in aggregate predict the S&P 500 will have a closing price of 5,225.00 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 9, the bottom-up target price for the S&P 500 was 5,225.00, which was 11.9% above the closing price of 4,667.45.

At the sector level, the Communication Services (+22.0%) and Energy (+19.2%) 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 Utilities (+6.2%) sector is expected to see the smallest price increase, as this sector has the smallest upside difference between the bottom-up target price and the closing price.

At the company level, the 10 stocks in the S&P 500 with the largest upside and downside differences between their median target price and closing price (on December 9) can be found in the tables below.

S&P 500: Difference Between Median Target Price & Closing Price: Top 10 (Source: FactSet)

S&P 500: Difference Between Median Target Price & Closing Price: Bottom 10 (Source: FactSet)

However, it is important to note that industry analysts have historically overestimated the closing price of the index at the start of the year. Over the previous 15 years (2006 – 2020), 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 7.3%. In other words, industry analysts on average have overestimated the final price of the index by about 7.3% one year in advance during the previous 15 years. Analysts overestimated the final value (the final value finished below the estimate) in 10 of the 15 years and underestimated the final value (the final value finished above the estimate) in the other five years.

However, this 7.3% average includes one year (2008) in which there was a substantial difference between the bottom-up target price estimate at the start of the year and the closing price for the index for that same year (+92%). If the year 2008 were excluded, the average difference 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 1.6%. If one applies the average overestimation of 7.3% to the current 2022 bottom-up target price estimate (assuming the estimate changes little between now and December 31), the expected closing value for 2022 would be 4,826.63, which is 3.4% above yesterday’s closing price of 4,667.45. If one applies the average overestimation of 1.6% (excluding 2008) to the current 2022 bottom-up target price estimate, the expected closing value for 2022 would be 5,141.31, which is 10.2% above yesterday’s closing price of 4,667.45.

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