Recession is imminent, the market believes — but Jeremy Siegel, Ed Yardeni, Tom Lee and other top analysts still see gains ahead for stocks. Here's why, and what they're saying.

• Stocks are poised to see some upside this year despite recession fears, according to some market pundits.
• Cooling inflation, China's reopening and low unemployment are among factors supporting such optimism.

Even as Wall Street rings the alarm bells about an imminent US recession, some experts see reasons to be optimistic on stocks.

Cooling inflation, low unemployment and China's move to reopen its economy are seen as some of the factors that could support consumer demand and help shore up investor confidence. Market pundits including Jeremy Siegel and HSBC's Max Kettner say the extreme investor pessimism in itself suggests the economic risks are mostly priced in, and points to chances of a rebound.

Economists have been warning of a severe economic downturn as the Federal Reserve raised interest rates by more than 400 basis points last year to rein in inflation that hit 40-year highs.

Recession fears prompted some of Wall Street's biggest banks to predict stocks could crash 20% or more this year. US stocks had a turbulent 2022 amid the economic concerns, with the S&P 500 declining 19% and the Nasdaq Composite plummeting 33%.

However, equities have started this year on a firmer footing, lending some credence to the more optimistic predictions.

Here's what top market analysts have said about the potential upside to stocks in 2023, and why.

Jeremy Siegel, Wharton professor

"I've never seen so much bearishness. There's never been a time when 60% of economists forecast a recession. And when everyone's on one side, I get very wary. I think there might be some real surprises [in 2023]," Siegel said in a Bloomberg interview.

"My projection is a 15% increase, and believe it or not... I think the first half might be the increase that surprises people, because the market is very forward-looking," he said.

"The market is forward looking. You can't wait until the sky is blue before you say 'oh yeah those profits are now going to be up I'll buy.' The prices are going to be up way before the profits respond to that recession. So even if you have a recession, I think it's discounted," Siegel added.

Ed Yardeni, market veteran and president at Yardeni Research

"I think we made a low on October 12 in the market. I think that was the end of the bear market. And I think we're back in a bull market. Not straight up, a lot of volatility, but I think the markets are telling us the world economy is improving," Yardeni said in an interview Wednesday with Bloomberg.

He based his view on factors including lower energy prices and China's reopening, which could boost stocks.

Tom Lee, managing partner at Fundstrat

"Our work suggests odds increasing [that] equities will produce more than 20% gains in 2023," Lee said in a note.

"This is so counter to consensus, which is looking for 'flat markets' marked by a steep decline in the first half of 2023, followed by a rally only in the second half of the year," he added. Lee said a gain of 23% this year would send the S&P 500 to a year-end price target of 4,750.

Rick Rieder, BlackRock's bond chief

"If you think about what equities are going to do this year – could equities generate an 8% to 9% positive return? Maybe," Rieder said, adding that uncertainty around the Fed's rate hikes could inject volatility into stocks.

"But it's going to be volatile," he added. "You can clip 6% in good-quality assets – that is nirvana."

Barry Bannister, Stifel's chief equity strategist

"2023 may be a year of two halves, with the market peaking by summer. Risk of recession rises in the back half of the year. Inflation may turn back up in late 2023, causing the Fed to re-tighten financial conditions," Bannister said.

He predicted a price target of 4,300 for the S&P 500 in the first half of 2023 to mark a 10% rise in stocks from current levels, driven by Fed pausing rate hikes, and a recession ultimately being dodged.

Max Kettner, HSBC

"What we're saying is, against the backdrop of such a concentrated consensus, there's simply a lack of downside catalysts, a lack of downside surprises, and therefore, the only way is up," Kettner said in a Bloomberg interview, talking about Wall Street's current pessimistic consensus on stocks.

"I think one thing that I would say is it's not like we're super bullish," Kettner said.

"It's not like I'm saying growth is going to go through the roof and it's going to be rock and roll. The only thing I'm going to say is well, it's not going to be a rocky horror show. Against the backdrop of such extreme pessimism, you don't need an awful lot of positive surprises to really make risk assets get going a little bit," he added.