Many of Wall St’s most well-regarded analysts still believe that the S&P 500 will rise from its current level of 1,055 between now and the end of the year. Some forecasts have been cut because of the economic headwinds. Goldman Sachs has dropped its prediction to 1,200 which is still a forecast of a rally. “If you want to be bearish, you have to make a convincing argument that we’re going to have a recession, and now that’s very difficult to do,” said David Bianco, the New York-based head of U.S. equity strategy at Bank of America Corp told Bloomberg “We’ve got earnings results far stronger than anybody expected, the economy’s not double-dipping, we’re merely slowing down. We very much belong outside of correction territory and going higher.”
It may be hard to remember, but the S&P 500 traded below 700 last March. The recession and credit crisis were to blame for that. Maybe there is another recession coming and maybe not. Either way, consumer spending, housing, durable orders, and employment numbers are all going the wrong way if bulls want to support their arguments. The optimists want to try to whistle as they pass the graveyard.
There is a very compelling case to be made that the S&P 500 will return to where it was in the summer a year ago–just under 900. Investors were not in a panic then. Many saw what they believed was some light at the end of the long recession’s tunnel. They were guardedly optimistic but uncertainly so. The current period is like that. Most experts believe that GDP will slow to 2% in the second half but that there will not be any new recession. Corporate earnings will stay strong, to some extent because of the significant cost cuts many made in 2008 and 2009. Profits are profits no matter how they are made as long as the ways are legal.
The high end of S&P forecasts, the outliers who think that public company profits will still rise sharply and consumer spending will go up, are in the 1,500 range for year-end. But, that won’t happen in light of what is going on now in the economy. Not in a million years.
Douglas A. McIntyre