Wall Street Cuts S&P 500 Expectations as Geopolitical Risk Rises

A Federal Reserve pause, seasonal tailwinds, an earnings-led rally. Many of the reasons that got Wall Street strategists increasingly bullish coming into the end of the year now look like wishful thinking.

As Israel’s war with Hamas escalates, souring traders’ risk appetites and dragging the S&P 500 Index into a correction, some mainstay equity optimists are scaling back their positive views on what the final months of 2023 will bring.

Oppenheimer & Co.’s John Stoltzfus, a long-time stock market bull, lowered his year-end forecast for the US equity benchmark to 4,400 from 4,900, previously the highest among forecasters tracked by Bloomberg. While he remains positive on stocks, he says there’s not enough time in the year for the index to reach his previously projected level as geopolitical risk and interest-rate worries afflict equities.

At Ed Yardeni’s eponymous shop, he also says it’s improbable the S&P 500 will recoup the 10% drop from its July peak before 2023 is out, a change from his view in August and September that the index could see a big rebound.

“We still think that a Santa Claus rally is possible. But between now and Thanksgiving, it’s easier to see downside than upside for the stock market given the unsettling developments in the Middle East and jitteriness in the bond market,” the Yardeni Research founder said in a note to clients on Monday.