Poor sales growth among American companies will hold back further gains in the stock market, according to Barclays Plc.
The Standard & Poor’s 500 Index will probably climb 2 percent to end the year at 1,975, Jonathan Glionna wrote in his first report as chief U.S. equity strategist for the London-based bank. Stocks are “modestly expensive” given the weak domestic economy and lack of strong sales growth from overseas, he said in a research report yesterday.
“The recovery rally has run its course and return expectations from here on out should be much more moderate,” Glionna said in a phone interview yesterday. “You’ve had a remarkable advance for the S&P 500 and it hasn’t necessarily been matched by earnings growth.”
U.S. equities have struggled to keep the same pace as last year’s 30 percent surge as investors worry whether corporate profits justify the highest valuation for the S&P 500 since 2010 and violence erupts across the Middle East and Ukraine. Economic data today showed retail sales were little changed in July, the worst performance in six months, as car demand slowed and tepid wage growth restrained consumers.
Glionna, previously head of global credit bank research at Barclays, recommends buying financial, energy, technology and industrial stocks, and holding fewer consumer staples and health-care stocks. His S&P 500 forecast for 2015 is 2,100, implying an 8.6 percent gain from yesterday’s close.
The average prediction from 20 strategists indicates the U.S. equity benchmark will end 2014 at 1,991, or a 2.7 percent advance from here, according to a survey compiled by Bloomberg.
The S&P 500, which has soared 187 percent since March 2009, trades at 17.6 times earnings, near the highest level since 2010. The index has advanced 5 percent in 2014.
While foreign sales have become more important to U.S. companies, the growth from these markets isn’t likely to return to levels seen in previous expansions, Glionna said. Revenue from overseas makes up about a third of total sales, according to Barclays.
The International Monetary Fund last month lowered its outlook for global growth as expansions weaken from China to the U.S. and military conflicts raise the risk of a surge in oil prices. The world economy will advance 3.4 percent in 2014, the IMF said, less than its 3.6 percent prediction in April.
Revenue for companies in the S&P 500 will increase 3.9 percent in 2014 and 5 percent in 2015, analyst estimates compiled by Bloomberg show.
“The advance you’ve had so far in S&P 500 is justified by record margins and record share purchases, but the renewal of top-line growth is a prerequisite for the next move higher,” Glionna said by phone.