Citi's Levkovich Lowers S&P 500 Target for 2016 on Oil Rout

  • Strategist lowers 2016 forecast 2.3 percent to 2,150
  • Says profits to fall by $2 per share as crude slide continues

The persistent rout in oil this year has spurred Citigroup Inc.’s Tobias Levkovich to cut his forecast for U.S. profits and gains by the Standard & Poor’s 500 Index.

Levkovich, the chief U.S. equity strategist at the bank, lowered his prediction for the S&P 500 by 2.3 percent to 2,150, after estimating in September the gauge would climb to 2,200 by the end of the year. He also trimmed his projection for the measure’s earnings by $2 a share to $126.50, saying energy companies are likely to see weaker-than-expected profit.

Crude prices, which have slumped 16 percent since Dec. 31, are to blame, said Levkovich in a note to clients on Thursday. His outlook for the S&P 500’s level at the end of 2016 is now more bearish than what his peers see. The median estimate among strategists surveyed by Bloomberg is for the index to climb to 2,200, data show. The median projection is 14 percent higher than the S&P 500’s close of 1,921.84 on Thursday.

“The view that the second half of 2016 would be weaker due to margin pressures, Fed rate hikes and the uncertainty of the U.S. elections admittedly did not incorporate such a poor start to the year,” Levkovich wrote in a note. “Investors already seem anxious about these and other issues.”

U.S. stocks have struggled in 2016, amid a deepening rout in commodities and worries China’s economy will falter. The S&P 500 has plunged 6 percent this year as a selloff in energy and raw materials shares extended into other sectors including consumer discretionary and health-care companies.

More Bullish

Levkovich’s earnings estimate for the S&P 500 is more bullish than other forecasters, who have a median projection of $125.

Jonathan Golub of RBC Capital Markets on Dec. 31 trimmed his 2016 year-end target to 2,225 from a prior estimate of 2,300 and shaved $4 off his earnings estimate to $124. He also blamed falling oil prices, as well as softer economic trends for his revised outlook.

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