S&P 500 Targets 3700-4100 Points Amid Mild Recession Fears

Analysts have projected that in the event of a mild economic recession, the S&P 500 index could target a range between 3700 and 4100 points. This projection is based on historical data and the expected impact of a recession on corporate earnings. The target range reflects a cautious outlook, acknowledging the potential for a significant decline in earnings while also considering the possibility of a relatively swift recovery.

Chris Senyek, the Chief Investment Strategist at Wolfe Research, highlighted that if the U.S. economy enters a recession, the stock market would face substantial downside risks, especially if high tariffs or uncertain policies lead to a weakening of corporate profits. In a mild recession scenario, the earnings per share of the S&P 500 index are expected to decline by at least 15%, aligning with the average drop of 16.7% observed during the past four economic recessions from peak to trough.

The current expected price-to-earnings ratio for the S&P 500 index is 19.4 times. Senyek anticipates that during an economic recession, this ratio could compress to the 10-year or 15-year average, which ranges from 16.6 to 18.4 times. Based on an earnings per share of $225 and a price-to-earnings ratio between 16.6 and 18.4 times, Senyek calculates that the S&P 500 index could target between 3700 and 4100 points during a mild recession.

The projection of a 15% decline in earnings per share is consistent with historical trends during economic downturns. This decline is expected to be mitigated by the resilience of certain sectors and the implementation of supportive policies. The target range of 3700 to 4100 points for the S&P 500 index suggests that while the market may experience a correction, it is unlikely to enter a deep and prolonged bear market.

The analysts' projection is based on the assumption of a mild recession, characterized by a moderate decline in economic activity and a relatively quick recovery. This scenario differs from a severe recession, which would likely result in a more significant decline in corporate earnings and a prolonged period of market weakness. The target range of 3700 to 4100 points reflects the analysts' belief that the market will be able to weather the economic downturn and recover relatively quickly.

The projection of a target range for the S&P 500 index is based on a combination of historical data, current market conditions, and the expected impact of a mild recession on corporate earnings. The target range of 3700 to 4100 points reflects a cautious outlook, acknowledging the potential for a significant decline in earnings while also considering the possibility of a relatively swift recovery. The projection is consistent with historical trends during economic downturns and is based on the assumption of a mild recession, which is characterized by a moderate decline in economic activity and a relatively quick recovery.