Credit Suisse strategists have boosted their 2022 price target, citing a strong economy and a lack of corporate tax hikes.
Strategists led by Jonathan Golub moved their S&P 500
SPX,
+0.31%
target to 5,200 from 5,000 — which would make an 11% improvement from Wednesday’s close.
The strategists say nominal gross domestic product will climb 7% next year, with 4% real GDP growth and 3% growth in inflation. A further decline in the unemployment rate will support the economy, as will improvements in backlogs and inventories.
Cyclical sectors should see the strongest margin, and earnings per share, growth next year.
But the big shift comes through taxes, or rather the lack of them. They no longer assume an increase in corporate tax rates accompanied by additional stimulus, which will send 2022 earnings per share for S&P 500 companies to $235 from $230, and 2023 EPS to $255 from $250.
The Biden administration so far has failed to win over two key centrist Democrats, Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, for the Build Back Better Act that the House has passed. The legislation has written imposes a minimum tax for corporations with profits over $1 billion, and creates a 1% excise tax on stock buybacks.
The strategists say they’re overweight cyclical sectors of energy, materials, industrials, and non-internet retail, and market weight technology, internet service and internet retail. “We would re-evaluate this positioning should the yield curve flatten further, nominal growth fade, or earnings trends reverse,” they said. They downgraded their financial and healthcare ratings to underweight.