Wall Street strategists cut 2015 stock outlook
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Stocks logged their worst quarterly loss in four years. Are we in for a bear market? Or is the bottom in sight? Adam Shell with America's Markets.
At the start of the year, Wall Street stock market strategists peered into their crystal balls and saw the stock market rising about 8% in 2015. That prognostication proved too optimistic.
Now, due to the stock swoon that began in late August and fresh headwinds for the 6 ½-year-old bull, many of Wall Street's stock gurus are downgrading their market calls to reflect a different reality.
The new call, on average: a gain of around 5% — which while lower than the initial projection at the start of the year would still add up to a decent return, considering the benchmark Standard & Poor's 500 stock index is down about 7% for the year after Thursday's down session.
Predicting where the S&P 500, a broad market gauge filled with stocks of the USA's biggest companies, will end each year is part art and part science. It is an annual forecasting event that Wall Street pros partake in, often with hesitance, as predicting the direction of the stock market with any accuracy is a difficult task, given all the things that can influence whether prices rise or fall.
At the start of the year, the 17 strategists polled by Bloomberg had an average year-end price target of 2225, which equated to an 8.1% gain over the 2014 close of 2058.90. At its closing high this year, the S&P 500 hit 2130.82, shy of the full-year bullish predictions.
The average 2015 price target now is down to 2171. The S&P 500 ended at 1924 Thursday, mean it would be a 13% gain to the new, lower projection.
Things changed for the worse in August. China's stock market basically crashed. Fears about China's slowing economy caused a global "growth scare." The Federal Reserve said it was ready to hike interest rates for the first time in nearly 10 years but last month failed to pull the trigger, creating confusion and uncertainty.
As a result, anxiety picked up and the U.S. stock market got caught up in the fear trade, suffering its first 10% price correction in four years.
Since the stock swoon began in August, one by one, many of the market strategists started to lower their year-end targets. In late August J.P. Morgan took down their numbers. So did Morgan Stanley. In early September Bank of America slashed its 2015 price target. The cuts continued this week, with strategists at Canaccord, RBC and Goldman Sachs all ratcheting down their expected gains for the year.
All told, 9 of the 17 stock strategists, or more than half, polled by Bloomberg at the start of the year, have lowered their price targets. Two of Wall Street's biggest bulls are among the bulls pulling in their horns. On Monday Tony Dwyer of Canaccord slashed his original year-end target of 2340 (or a projected annual gain of nearly 14%) down to 2150 (or a more modest gain of 4.4%). Jonathan Golub of RBC slashed his target to 2100 from 2325.
The reasons for the less-bullish call from Golub mimic the concerns other market pros have expressed recently. Fears of slowing economic growth around the world. The bloodbath in commodities caused by the China slowdown. Confusion related to when the Fed will hike interest rates.
"Commodity weakness (especially oil) and slower global growth have pressured corporate earnings in 2015," Golub said in a note explaining his downgraded assessment of the stock market, adding that "China will continue to be a source of disappointment."
But Golub remains constructive about U.S. stocks, predicting a late-year rebound driven by investors pricing in better earnings growth next year from U.S. companies and a slower yet still growing economy, as well as stability in the hard-hit oil patch.
A slowdown in global growth was also cited by Goldman Sachs' strategist David Kostin on Tuesday when he reduced his year-end target to 2000, down from 2100. "The impetus for the reduction is that our models now incorporate a slower pace of economic activity in the U.S. and China and a lower oil price than we had been previously assuming.”
Kostin joins Sean Darby at Jefferies as the only two of the 17 strategists polled by Blomberg who expect the S&P 500 to finish in negative territory this year.
More from USA TODAY’s Q3 stock market report:
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