Two Bullish Strategists Bow to Selloff, Cutting S&P 500 Forecast

  • S&P 500 outlooks reduced on global concerns, oil weakness
  • Benchmark forecast down 2.6 percent since August selloff

Two of the bull market’s biggest cheerleaders are reining in their enthusiasm as U.S. stocks head back to their lows from an August selloff.

RBC Capital Markets LLC’s Jonathan Golub and Canaccord Genuity Securities LLC’s Tony Dwyer, who were among the highest of 21 strategists with their year-end forecasts for the Standard & Poor’s 500 Index, cut their estimates by as much as 9.7 percent. The two add to a chorus of souring sentiment amid concerns over global growth and selloffs in commodities and biotechnology companies.

A total of eight strategists surveyed by Bloomberg have sliced their year-end forecasts for the benchmark since Aug. 10. Strategists now predict the S&P 500 will reach 2,176 at the end of 2015, down from an average estimate of 2,233 in early August, a 2.6 percent decline.

While that still suggests a 16 percent gain from now until the end of the year, it may be a high hurdle as stocks struggle to regain ground after the first correction in almost four years. Equities are also about to enter an earnings season in which profits are forecast to drop 6.5 percent.

“Commodity weakness (oil) and slower global growth have pressured corporate earnings in 2015,” Golub wrote in a Monday note. “Our constructive outlook is predicated upon our belief that economic activity will remain slower for longer, resulting in an extended business cycle.”

He estimates S&P 500 companies will report earnings per share of $120 for the year, down from his previous forecast of $125. He lowered his S&P 500 price target to 2,100 from 2,325.

After years of resilience from U.S. companies, cuts to profit estimates outnumber increases by the most in three years, based on an index tracking the changes compiled by Citigroup Inc.

Analysts estimate earnings for S&P 500 members to be flat in 2015 -- the benchmark’s worst performance since 2008 -- before an estimated rebound of 9.4 percent in 2016. That’s largely driven by declining oil amid a 27 percent slide in a Bloomberg index of commodities over the past 12 months.

As uncertainty over Federal Reserve interest-rate policy and deteriorating corporate credit weigh on investor sentiment, expectations are for the S&P 500 to retest its August lows, according to Dwyer. He considers the Aug. 24-25 selloff to qualify as a crash. Since 1970, all 14 crashes in the S&P 500 have resulted in a retest of the lows, he wrote in a Monday note.

If that scenario plays out this time, Dwyer sees the S&P 500 ending the year at 2,150, below his previous forecast of 2,340.

The S&P 500 tumbled 2.6 percent to 1,881.77 on Monday, as commodity prices and biotechnology companies continued a selloff and small-cap stocks slid. The S&P 500 has fallen 8.8 percent this quarter, its worst performance since 2011. The benchmark index reached an all-time high of 2,130.82 in May and has since fallen 12 percent.

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