Credit Suisse Grows Nervous on Stocks as Markets Push Higher
This time six years ago, stock investors were in despair. By early March of 2009, the S&P 500 was in a free-fall, down almost 60% from the highs printed in October of 2007. Then the market put in a V-bottom and took off as if loaded with rocket fuel. For the most part, stocks have relentlessly pushed higher and recovered handily from every road bump and pullback along the way.
In a new research note from Credit Suisse, the firm’s global equity strategist, Andrew Garthwaite, and his team have spotted some red flags for equities in the short-term. This may be cautious, but the Credit Suisse team still believe the bull market is intact.
With very conflicting data, and the world awash in quantitative easing, it is easy to understand why the Credit Suisse analysts are skeptical in the near term. While the economy is improving, and plummeting gasoline prices are essentially a pay raise for the American consumer, some big-ticket purchases are not what was expected, at least so far.
Here are the five main reasons and some data points presented that explain why the Credit Suisse team is a little jumpy on stocks for the short term.
1. U.S. and global corporate earnings revisions are at six-year and three-year lows, respectively. These are levels that have been historically associated with flat or sideways trading markets.
2. High-yield debt spreads, not including energy, have risen more than they normally do prior to a bear market, with banks underperforming. In what is something of an anomaly, stocks have sold off despite very tame inflation expectations.
3. The Credit Suisse analysts see an overall less-supportive macro environment globally. They point to worsening data from China, and the country’s weakening currency, which is adding to the global disinflation picture.
4. While they point to U.S. wage growth rising, a positive for consumers, which accounts for almost 70% of gross domestic product, they see the now on-again issues with Greece being in the forefront once more until this summer. The last time Greece was an issue, the markets were very jumpy.
5. Credit Suisse reduces it equity weighting to what they classify as “small overweight” from “large overweight.” They lower the mid-year S&P 500 target to 2,100 from 2,250, and the end of 2015 target to 2,150 from 2,200. They do point out most other index targets are left intact.
Here was a preliminary view from Wall Street strategists with projections for the S&P 500 in 2015.
While the Credit Suisse report is hardly a “sky is falling” or “look out below” bear market call, it is in line with some of the other firms we cover on Wall Street. Super bullish equity strategists are a little harder to find after a six-year bull market has generated a 200%+ run on the S&P 500. Most firms seem to have a low to mid single-digit upside target now for the S&P 500, and barring any major economic changes, that seems to be a reasonable goal for the balance of 2015. It is entirely possible we could have a few 7% to 10% sell-offs tossed in just to make things interesting.