Wall Street Pros Were Bullish for 2021, Just Not Bullish Enough

It was another tough week in a brutal year for bears. Despite being right about many aspects of inflation, monetary policy and the persistence of the coronavirus, equity bears who were expecting anything to put a meaningful brake on the stock market were again denied.

Investors limped into the week amid incontrovertible evidence price pressures are building in the economy amid a market rally that has sent the S&P 500 up 25% in 2021. Then retail sales jumped the most in seven months, Home Depot Inc. posted stellar results and regional manufacturing measures soared past forecasts. Barely a week after the fastest jump in consumer prices in three decades, the S&P 500 hit its 66th record of the year on Thursday.

Wall Street forecasters have been saying all year that a slowdown in the 20-month bull market would be natural, with valuations stretched, growth forecast to slow and the Federal Reserve expected to hike interest rates in 2022. But so far in the fourth quarter, consumers continue to defy the pessimism. A Fed model of economic growth is on track to exceed almost all projections in a Bloomberg survey of economists

“The recovery happened much more quickly in 2021 than anyone had predicted,” Chris Gaffney, president of world markets at TIAA Bank, said in a phone interview. “It’s realistic to think that markets are not going to be able to repeat 2021, which will go down as a very good year.”

The resilience is doing little to dissipate gloom among strategists when it comes to 2022. The average projection for the S&P 500 at the end of 2022 is 4,843, representing a mere 3% advance from the current level. That counts as the least optimistic outlook behind only 2019 in two decades of data.

Chalk up caution among the normally bullish group to an unorthodox recovery that has played havoc with forecasts. Take the latest week, when many were convinced strained supply would hamper growth. Instead, retailers were bragging about their ability to build inventories ahead of the holidays. And jobless claims fell to a new pandemic-era low, signaling a still-strong labor market.