The Standard & Poor’s 500 Index will fall 1.8 percent to 1,390 by the end of 2013 as global growth slows and policymakers struggle to reach a budget agreement, according to Wells Fargo & Co.’s Gina Martin Adams.
Adams, who has the lowest projection for the U.S. equity benchmark next year among Wall Street strategists surveyed by Bloomberg, says investors should buy companies that are least-tied to economic growth. The average estimate from eight other forecasters implies a 9.2 percent rally to 1,546 from Nov. 30.
“The U.S. economy is likely to flirt with recession in the near term, as slowing exports and falling investment likely lead to a weaker consumer at the start of 2013,” Wells Fargo’s Adams wrote in a note today. “The market will suffer downward pressure until policymakers act decisively to convince investors that the U.S. debt house is ‘in order’.”
The U.S. national debt has soared to more than $16 trillion from less than $9 trillion in 2007 and lawmakers are debating ways to avoid automatic tax increases and spending cuts that will kick in next year if an agreement is not reached. The Congressional Budget Office has warned that if Congress doesn’t avert the so-called fiscal cliff, the economy might slip into recession next year.
Adams recommends holding more health-care, consumer staple and utility shares than the U.S. equity benchmark, and fewer energy, industrial, material and technology companies.
Wells Fargo’s Adams estimates earnings per share for S&P 500 companies of $103 in 2013. It’s the second-lowest projection among the strategists surveyed, only behind Morgan Stanley’s forecast of $98.71 by strategist Adam Parker. Thomas Lee at JPMorgan & Co., which has the highest estimate, predicts S&P 500 earnings of $110.00 a share next year.
“There is a trifecta of major macro drags likely to continue to wreak havoc on S&P 500 company earnings,” Adams wrote. “ First, growth in the Eurozone continues to falter. Second, business investment is contracting. Finally, the combination of slow exports, declining investment and fiscal policy is likely to result in a slowdown in the U.S. consumer sector at the start of 2013.”
The U.S. economy is forecast to grow 2 percent next year from the 2.2 percent gross domestic product projected for 2012, according to a Bloomberg survey with economists.
Adams is also among the most bearish strategists for 2012. The New York-based strategist predicts the S&P 500 will fall 4 percent through the end of 2012 from Nov. 30. On average, the strategists surveyed by Bloomberg say the index will end the year at 1,399.