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Barclays Wealth Cuts S&P 500 Estimate as Slowdown Risk Rises

Barclays Wealth, which manages $231 billion in client assets, reduced its estimate for this year’s gain in the Standard & Poor’s 500 Index because the chance of a slowdown in economic growth has increased.

The U.S. equity benchmark will end this year at about 1,110, up 4.2 percent from its close on July 16, according to Michael Dicks, London-based head of research, economics and strategy at Barclays Wealth. That’s 9.8 percent lower than the 1,230 level that the asset manager forecast in April.

Concern about the economic recovery and a sovereign-debt crisis in Europe helped push the S&P 500 4.5 percent lower this year. Continued risks to growth in either the U.S. or China may push stocks lower, Dicks said. Confidence among U.S. consumers tumbled in July to the lowest level in a year, while China’s gross domestic product rose a less-than-forecast 10.3 percent in the second quarter, down from 11.9 percent in January to March.

“The probability of something really horrible happening has risen,” Dicks said in a press briefing in London today. “With growth in both the U.S. and Asia set to slow in the second half of the year, fears may rise. Expectations could remain polarized between either a stock market boom or a deflationary bust.”

Still Cheap

Barclays Wealth’s forecast for the S&P 500 is below the mean estimate of 12 strategists surveyed by Bloomberg News on July 12, who anticipated that the benchmark will reach 1,242 at the end of the year, a 17 percent rally from its July 16 close.

If economic growth does not “fall apart,” the S&P 500 may still climb from 15 to 20 percent as price-to-earnings multiples suggest “they are still cheap,” he said. The S&P 500 has dropped 13 percent from its high this year on April 23, driving its valuation to about 15 times the reported earnings of its companies, near the lowest level since June 2009, according to Bloomberg data.

The asset manager also lowered its estimate for the U.K.’s benchmark FTSE 100 Index to 5,300, a 9.2 percent decline from the 5,840 it had anticipated in April, and trimmed its Euro Stoxx 50 Index forecast to 2,820 by year-end, which is 8.1 percent below the 3,070 it had estimated in April.

As European governments slash their budget deficits, gross domestic product in the 16-nation euro region may fall and monetary union may “break up entirely,” adding to uncertainty in equity markets, according to Dicks.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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