Top Wall Street strategists see another roller-coaster year ahead with minimal returns for stocks

A brutal year for stocks has made Wall Street strategists cautious about what's ahead as most are forecasting a similarly bumpy 2023 with minimal returns. The average 2023 year-end target for the S & P 500 stands at 4,147, less than 7% higher than its current level, according to CNBC Market Strategist Survey, which rounds up estimates from 15 top Wall Street strategists. While the average forecast calls for a higher year, many are seeing double-digits drawdowns during the period as the economy is expected to deteriorate. There's a big divergence of outcomes for next year — from Deutsche Bank and CFRA seeing the S & P 500 rallying 16% to top 4,500 to Barclays projecting another down year to 3,725. The top-of-mind concern for the year ahead is the risk of a U.S. recession, depending on when the Federal Reserve will end its aggressive tightening measures. "Sources of concern remain aplenty into 2023," Barclays strategists said in a note to clients. "More cracks are showing in the economy, yet a tight labor market and sticky services inflation call for further rates hikes. So policy easing is still distant and recession may ultimately be the cost of bringing down inflation." Even Binky Chadha at Deutsche Bank, one of the biggest bulls, expects stocks to drop to new lows during the third quarter as a recession hits. The S & P 500 could tumble more than 16% from Wednesday's close to 3,250 before a strong rally to end 2023 higher. The Fed has raised its benchmark interest rate to the highest level in 15 years, signaling more hikes to come to bring soaring inflation under control. 'Out of Steam' The equity benchmark slid into a bear market earlier this year, falling more than 20% from its January peak. While rallying 8% in the fourth quarter so far, the S & P 500 is still on track to lose at least 18% in 2022, headed for its worst year since 2008. Morgan Stanley's Mike Wilson, who accurately called this year′s sell-off, said the market has now "run out of steam." He sees the S & P 500 dropping 20% to the 3,000-3,300 level by the first quarter of next year. Wilson said he believes the final chapter to this bear market is all about the path of earnings estimates, which are far too high, he said. Goldman Sachs has also been warning about deterioration in corporate margins. Even without a recession, earnings could fall next year due to more margin compression than it previously expected, Goldman said. The firm noted that S & P 500 companies' third-quarter reports showed margins contracted year over year for the first time since the pandemic. "It is difficult to outline a realistic scenario that drives the S & P 500 substantially higher next year," David Kostin, Goldman's head of U.S. equity strategy, said in a note. The Wall Street firm said its base case is that the S & P 500 will fall to 3,600 in the first half of 2023 before rallying to 4,000 by year-end. If the economy goes into a recession, Goldman said, the S & P 500 would decline to 3,150. Wells Fargo, with a 2023 target of 4,200, stressed that it will likely be a "very choppy" market and 2023 will not be a buy-and-hold year. — CNBC's Michael Bloom contributed reporting.