Nobody is rushing to revise year-end S&P 500 targets higher. The majority of those surveyed by Bloomberg expect the S&P to end at a lower level than it’s at now. Forecasters at RBC, for instance, reiterated a year-end S&P 500 target of 2,950, about 1.3% below current levels. Citigroup maintained its 2,850 target, and both shops warned rallies won’t be sustainable. Jonathan Golub at Credit Suisse recommended “cautious positioning” given the decelerating environment. “This has been so good,” Samantha Azzarello, global market strategist for JPMorgan ETFs, said in an interview at Bloomberg’s New York headquarters. But “the risks are to the downside and it makes sense to take some profit, rebalance and hold more cash.”
But even that may be too little, too late, according to Morgan Stanley. A gauge of U.S. factory activity is at its lowest level since October 2016, for instance, and many other data points are already headed lower. “An accommodative Fed might cushion the blow but likely won’t prevent it,” wrote the firm’s strategists, led by Mike Wilson, in a note. Wilson and his cohort recently predicted the S&P is likely to fall into a 10% correction in the third quarter on the back of the weak data.
Earnings forecasts for S&P companies have been getting worse by the week. More than 80% of those that have issued new forecasts have slashed their profit estimates. At Citigroup, a client survey showed a majority believes profit forecasts for next year are too high. “Seasonally, this has not been a great time for share prices and 2019 may not be any exception,” wrote strategists led by Tobias Levkovich in a note. “We would expect higher volatility,” said Spika. “Everything was up in the first half — every asset class. Safe havens, risky assets, everything went up,” he said. “It’s just not sustainable.”