A veteran strategist breaks down why the S&P 500 will soar over 10% to 5,300 by the end of 2022 – and dismisses pessimists like Michael Burry
- BMO Capital Markets' Brian Belski has the most bullish S&P 500 forecast on the street.
- The veteran strategist thinks it will hit 5,300 by the end of next year, from around 4,600 on Friday.
Brian Belski, BMO Capital Markets' top investment strategist, went on CNBC in March 2020 and predicted there would be an "epic move to the upside" in US stocks, like "something we've never seen before."
He was right then, and now he's back with Wall Street's most bullish forecast for US stocks, predicting earlier this month that the S&P 500 can rally more than 13% to 5,300 by the end of 2022.
At the root of Belski's bullishness is his belief that company earnings will stay strong, central banks will remain supportive, and that inflation and supply chain problems should cool.
"I believe that next year is going to be another good year because I think people are too focused on inflation. They're too focused on the negative," he told Insider this week.
"The fundamental construct of the United States stock market is in wonderful condition. We have the best equity assets in the world, period."
Belski was dismissive of market bears such as legendary investor Jeremy Grantham and Michael Burry of "The Big Short" fame, who are well known for warnings that stocks are heroically overpriced and that a crash is coming.
There are many "Chicken Little" strategists out there, he said, referring to the folk tale character who warns the sky is falling. Many of them have had the same call for three years, he said, during which time equities have soared and "they've missed the entire move."
Fed tightening shouldn't hurt stocks
Belski and his colleagues brushed off concerns that stocks will suffer as the Federal Reserve tightens monetary policy, as they laid out the reasoning behind their bullish forecasts in a note earlier in November.
The Fed has already announced that it will trim its bond purchases by $15 billion a month in response to strong inflation, which is at a 31-year high.
But Belski and co. wrote: "The size of [the Fed's] balance sheet will remain very large for quite some time, which should continue to be supportive of stocks."
Even if the US central bank hikes interest rates in the middle of next year as expected, equities should still stay solid, they said.
Belski acknowledged that US stocks have historically struggled in the three months following the first in a cycle of interest rate rises from the Fed, with the S&P 500 falling 1.9% on average. "However, the index has done fairly well thereafter, gaining 7.5% on average in the subsequent 12 months," he noted.
Inflation will cool and earnings will stay solid
In any case, Belski thinks jitters about inflation should cool next year as supply chain kinks get ironed out. BMO expects the US consumer price index to fall from the 6.2% year-on-year rise in October to an increase of 2.4% by the end of 2022.
More important, Belski believes corporate earnings will continue to drive stocks higher. Although earnings growth is set to slow, it's still growth, he said. The strategist expects S&P 500 earnings per share to increase 17% by the close of next year.
Belski and his BMO colleagues think that given the stellar recent performance of stocks, they are bound to hit some volatility at some point, before resuming their march higher. But they said that trying to time the market is very difficult and that a "stay-invested strategy" is the best bet.