S&P 500 forecast: Q1 earnings season in focus

The US benchmark index has gained over 8% this year so far, can it keep the momentum? We take a look at the S&P 500 forecast for 2023 and beyond.

By Capital.com Research Team14:07 (UTC), 17 April 2023 Updated

The S&P 500 index (US 500) has gained bullish momentum amid slowing of inflation and upbeat earnings of US banks. The US benchmark stock index rose over 8% year-to-date, as of 17 April, gaining over 7% since the 17 March dip.

Will the S&P 500 index continue rising? In this article, we take a look at the index composition, price performance and S&P 500 forecasts for 2023 and beyond from analysts.

S&P 500 Index Live Chart

Understanding the S&P 500 index

An in-depth sector analysis of the index could offer more clarity on the driving forces that will shape the S&P 500 predictions in 2023.

As the most widely cited indicator of the performance of US large-cap equities, the S&P 500, alongside the blue-chip Dow Jones Industrial Average Index (US30) and the tech-heavy Nasdaq Composite Index (US100), represents one of the three primary benchmark indices for US stock markets.

The S&P 500 is weighted by market capitalisation, meaning that its constituents with higher market caps are accorded more significant weightings.

The information technology sector accounted for the highest weighting on the S&P 500 at 26.1%, according to S&P Global data as of 31 March. It was followed by healthcare and financials, with weightings of 14.2% and 12.9%, respectively.

Among the index's 503 components, technology stocks topped the list, with Apple (AAPL) holding the highest weighting, followed by Microsoft (MSFT), Amazon (AMZN), Nvidia (NVDA), and Alphabet (GOOGL).

S&P 500 Index price performance

Between March 2020 and January 2022, ultra-low interest rates fueled a meteoric rally that saw the S&P 500 surge about 120%, from a peak pandemic low of 2,191 points to an all-time high of 4,818 points by 3 January 2022.

2022 has been a different story as multi-decade-high inflation forced the US Federal Reserve (Fed) to end its "goldilocks" monetary policy. The invasion of Ukraine by Russia in February further added to cost pressures by pushing energy and commodity prices higher.

What followed was an aggressive tightening cycle by the Fed that saw interest rates surge from 0%-0.25% in March 2022 to 4.75%-5% a year later, pushing borrowing costs to new highs since 2007. Between 2022 and 2023 the US benchmark index has lost over 20%.

S&P 500 index price, 2018 - 2022

Yet in 2023, the expected slowing of the policy tightening is giving fresh hopes to the S&P 500. Year-to-date, the index has gained over 8% as of 17 April, driven by lower-than-expected US March inflation reading and upbeat earnings by US banks. As explained by Capital.com’s market analyst Daniela Hathorn:

“Stock indices have been building bullish momentum for the past month as traders seemed to be relieved that the potential for a widespread banking crisis was narrowly avoided. Traders continue to believe the Federal Reserve is mistaken in thinking they can hold the terminal rate above 5% by year-end, with markets pricing in a rate of 4.1% in December, a full percentage below the central bank’s predictions.”

Q1 earnings in focus

There is some early optimism about the first-quarter earnings season, with some US banks already beating analyst expectations. This follows a slump in investor sentiment for the lenders since the collapse of Silicon Valley Bank.

JPMorgan Chase's (JPM) first-quarter net income rose by 52% year-on-year, with the bank receiving $37bn in deposits following SVB's tumble, according to the latest earnings report.

Citigroup's (C) Q1 net income also rose to $4.6bn, or $2.19 per share, driven by strong consumer spending and corporate activity, the latest press release showed. The bank's profits were further boosted by planned sales, including a consumer banking business in India.

Wells Fargo (WFC) saw a 17.8% increase in sales in Q1, with sales reaching $30.7bn, but deposits have fallen slightly and are 7% lower than last year, according to the Q1 report.

Meanwhile, the Factset data showed that 90% of companies that reported so far have beat estimates in earnings per share (EPS), which is above five-year and ten-year averages. The positive earnings surprises are led by financial stocks, such as banks.

Analysts at Morgan Stanley, however, were more cautious about the upcoming earnings, pointing out that the EPS forecast for the S&P 500 has fallen at a rate of approximately 9% per annum since peaking in June 2022. Mike Wilson, chief US equity strategist and CIO at the bank, explained in a note on 16 April:

“If we are right on our well below-consensus next-twelve-months (NTM) EPS forecast, the pace of decline in these [earnings] estimates should increase materially over the next few months/quarters as revenue growth begins to disappoint. To date, most of the disappointment on earnings has been a result of lower profitability, particularly in the technology, consumer goods and communications services sectors.”

Macro view: Monetary policy and inflation

Inflation and interest rate decisions by the US central bank have been major driving forces behind S&P 500 index price.

The March US Consumer Price Index (CPI) data showed year-on-year inflation of 5% in March. The reading was the ninth consecutive month of decline in inflation, and lower than expected by analysts, which gave a boost to US equities. Meanwhile, Morgan Stanley’s Wilson expressed scepticism about the bullishness following the reading:

“To those investors cheering the softer-than-expected inflation data last week [March reading], we would say be careful what you wish for. Falling inflation last week, especially for goods, is a sign of waning demand, and inflation is the one thing holding up revenue growth for many businesses. The gradually eroding margins to date have been mostly a function of bloated cost structures. If/when revenues begin to disappoint, that margin degradation can be much more sudden, and that’s when the market can suddenly get in front of the earnings decline we are forecasting, too.”

According to Capital.com’s Daniela, the latest FOMC meeting minutes “failed to reveal any new information, evidencing that some members had weighted stopping rate hikes at the March meeting after the banking rout, but still on track to continue tightening.”

Meanwhile, analysts expect the rates to peak somewhere in 2023. The Dutch bank ING, for example, as of 6 April forecasts saw the rates peak at 5.25% in the third quarter, before slowing down to 4.25% at the end of the year.

S&P 500 forecast for 2023 and beyond

According to data from Tipranks, a platform that tracks the recommendations of financial analysts, a total of 6,331 Wall Street analysts offered 12-month price targets to SPY holdings within the past three months, as of 17 April. The SPY, or SPDR S&P 500 Trust ETF, is a popular exchange-traded fund that tracks the performance of the S&P 500 index

The average 12-month price target stood at $462.34, with a high forecast of $555.69 and a low forecast of $373.17. These S&P 500 predictions suggested an anticipated change of 12.09% from the most recent closing price of $412.46 on 14 April.

Meanwhile, Factset data from late March showed that industry analysts were predicting a 17% increase in the index price over the next year. The Energy sector was expected to see the largest price increase (+31.9%), while the Information Technology sector was expected to see the smallest price increase (+6.3%).

The economic data provider TradingEconomics gave a price target of 4,006.48 by the end of the first quarter, and predicted a slump to 3,637.41 in one year according to their global macro projections and analysts expectations as of 17 April.

With so many uncertainties at play, analysts did not provide an S&P 500 forecast for 2025 or S&P 500 forecast for 2030.

In the short-term, Capital.com’s Hathorn pointed out that the recent surge in the US stocks seems “overextended, but the technicals are still supporting a path of least resistance higher.”

“The S&P 500 has already started to show signs of a pause in the uptrend as the index has found resistance at 4,150 for the third session in a row. From here up until the 4,200 is where we saw a confluence of selling pressure back in February when it last attempted to break higher, and that led to a reversal back down to 3,800. We could see this pattern repeat itself although sellers would first need to break through support at 4,069 to consider the trend reversal to be unfolding.”

Note that analysts’ forecasts and price targets can be wrong and shouldn’t be used as a substitute for your own research. Make sure to always conduct your own due diligence before trading, and never trade more money than you can afford to lose.

FAQs

Is the S&P 500 a good investment?

Whether the index is a good investment for you or not would depend on your portfolio composition, investment goals, and risk profile, among other factors. You should do your own research, looking at the latest price action, fundamentals and technicals.

Will the S&P 500 price go up or down?

Factset data from late March showed that industry analysts were predicting a 17% increase in the index price over the next year. The Energy sector was expected to see the largest price increase (+31.9%) in the US500 forecast, while the Information Technology sector was expected to see the smallest price increase (+6.3%). Note that analysts’ US500 forecast can be wrong and shouldn’t be used as a substitute for your own research.

Should I invest in the S&P 500?

Whether the index is a good investment for you or not will depend on your portfolio composition, investment goals and risk profile, among other factors. You should do your own research, and remember that past performance is no guarantee of future results. Never invest any money that you cannot afford to lose.