Is Wall Street bullish enough on 2021?

With many market watchers providing outlooks about where they think the S&P 500 is heading next year, strategists such as UBS’ Keith Parker are highlighting where the balance of risks lie.

Video Transcript

JULIE HYMAN: --Tech's vaccine being administered in the UK, first one to the 90-year-old woman who I mentioned, and also one of the first doses was given to a man named William Shakespeare, interestingly enough an 81-year-old in Britain.

As we consider the vaccine rollout and the effect that it has on markets and the anticipation in the markets, we've seen a lot of bullishness, as we've discussed among market outlooks and strategists on Wall Street, going into next year, but is there even more potential for upside given this vaccine rollout? And in this morning's Yahoo Finance Morning Brief, Myles Udland, that's something that you write about. We talk a lot about these market outlooks, right, and whether they're on the mark, but there's at least one strategist who says maybe there's even a scenario where there could be further upside.

MYLES UDLAND: Well, and you know, Julie, this actually echoes something that you brought up when we discussed this topic last week, which is that Wall Street strategists tend to be wrong for not being bullish enough. I mean, the average return for the S&P 500 tends to be about 8% per year, but rarely-- I think it's something like less than 20% of years-- is the return for the index actually in that 5% to 10% range. Either you have kind of a flattish year, but more often you end up having double-digit-type returns.

So Keith Parker over at UBS wrote in his outlook last week he's looking for 4,100 on the S&P. That's a 10% gain, basically, from where we trade today. So that's a pretty standard year ahead.

But in Parker's view 4,400, would be the upside target, and that's more likely than the downside target of 3,300. In other words, the way, Parker sees the market, it's more likely that if there is a surprise it would be an upside surprise than a downside surprise.

Obviously this chart we're showing on the screen comes to us from UBS, and this is basically where it all hinges. By the end of next year, there's a potential, in UBS's view, that 80% of the population may have received the vaccine. And so something like normal for the economy certainly would put the balance of risks to the upside.

And, you know, Julie and Sozzi, we all read a lot of these notes, and we're all familiar with the trope, the genre convention, as it were, which says downside risks or risks to the outlook are out there. And they're usually like, oh, stocks can go down 7%, 5%, healthy pullbacks, all this, that, and the other, right? But rarely do you have strategists saying, you know, actually we could be wrong or we'll probably be wrong by being too conservative.

Jan Hatzius at Goldman Sachs just this morning said the exact same thing, and I think I'm actually going to write about that in the Morning Brief tomorrow because it is a point worth reiterating. Wall Street is worried that they are too conservative because everything about this recovery next year is going to be different. We've never really seen a health shock and then a fiscal/monetary stimulus like this where you could have the entire shock come and go inside of 12 or 18 months. It's a very different scenario, and so I think it is just something to continue to reiterate as we enter next year. Truly an event that has never happened before.

BRIAN SOZZI: I'll add this, guys, and I wrote about this yesterday in a piece. Essential to achieving some of those high-end S&P 500 targets we are seeing-- we're talking about 4,300, 4,400, 4,500 next year. It's essential that we get earnings surprises. If you troll some FactSet data on earnings growth next year, right now analysts are looking for about 22% earnings growth. There is a lot of high expectations baked into the Street with regards to S&P 500 earnings next year, and it's essential that this vaccine gets out quickly if those numbers are to be met. If not, some of those high-end price targets are likely to fall by the wayside, and you could see a market correction.

JULIE HYMAN: All right, Brian Sozzi in there with the downside risks, layout those out for us and--

BRIAN SOZZI: Why not?

JULIE HYMAN: --making that argument. Yes, why not? You've got to have your eyes open to all of the possibilities for sure.