Investing

Bearish DJIA Case in 2016 Drops to 14,961 From 15,076: Chevron, Goldman Sachs, Intel, IBM, JPMorgan, Disney

Johnson & Johnson (NYSE: JNJ) saw its lowest analyst target price cut to $92.00 from $95.00, but its $108 consensus target was flat from the end of 2015. The new lowest analyst target would imply a drop of more than 10.4% in 2016, different from the bullish and bearish outlook for 2016.

JPMorgan Chase & Co. (NYSE: JPM) saw its price target cut to $63.00 from $65.00. This would have been down from $66.00 at the end of 2015, but the new lower low target from analysts was just above $57.00 on Friday. In short, a lower target here is actually above the new price, and it reflected a $0.44 dividend payment on January 4. The consensus target price was moved down to $72.33 from $72.96. The new lowest analyst target would imply a drop of 4.59% in 2016, but the JPMorgan bullish and bearish case was better.

Merck & Co. (NYSE: MRK) saw its lowest analyst target price drift down to $53.00 from $54.00. Merck’s consensus target price of $61.74 after two weeks of selling is down slightly from the $62.26 consensus target at the end of 2015, and this new lowest analyst target being cut by $1.00 would imply a gain of 0.34% in 2016. Merck’s bull and bear case looked better just two weeks ago.

Travelers Companies Inc. (NYSE: TRV) saw its price target actually tick up to $92.00 from $90.00 in its coverage universe. The latest consensus target price of $112.40 was slightly higher than the $111.19 consensus target seen at the end of 2016. The new lowest analyst target for Travelers would imply a drop of 18.48% in 2016. There was no Travelers bull-bear case run in 2016, but Merrill Lynch was cautious here just in December.

Walt Disney Co. (NYSE: DIS) saw its lowest analyst price target drop down to $89.00 from $90.00 in the first two weeks of 2016. This is a new low from a new firm because Barclays made that cut with a downgrade to Underweight from Equal Weight and from a prior $98.00 price target. Disney’s bullish and bearish outlook has had less charge and more hibernation since the end of 2015. Its consensus target had drifted lower to $115.74 from $118.24 at the end of 2015. The new lowest target from Disney’s analysts would imply a drop of 15.3% in 2016.


Again, if the stock market heads lower you can expect that the lowest price targets on many of the Dow stocks also will head lower. That’s just the way it works, just like how analysts keep chasing their price targets ever higher during bull markets or large rallies. One last issue that has to be addressed here is that there is often a discrepancy on Thomson/First Call estimates from source to source, and those can change without notice.

Our peak-DJIA calculation for 2015 was 19,142 and the bullish projection at the end of 2015 was a DJIA 19,700 peak value. We have said that, despite anything being possible, this just seemed far too rosy, even among the biggest market bulls. Again, analysts were just too damned positive. By the end of 2015, the Dow had posted a loss of 2.2% instead of a big gain. Even using the 19,142 DJIA peak price projection, the reality is that the DJIA peak was almost 800 Dow points under the top-tick target.

There are other issues to consider in 2016 for why investors have grown less trusting and bullish. Expecting double-digit gains for the Dow in 2016 has now become much harder as the Dow and S&P 500 were last seen more than 10% off their highs. Investors are now selling rallies rather than buying dips. Economic growth in the United States and in growth markets looked better at the start of 2015 than it did at the start of 2016.

The 8.25% DJIA drop in the first 10 trading sessions of 2016 was worse than the drop of 5.75% in the Dow in the first 10 trading sessions of 2008. And do we even seem like we are entering a global financial crisis yet? Oil and commodity weakness persists, as does a strong dollar. Another caution is that Federal Reserve presidents keep talking up the possibilities of raising interest rates gradually in 2016, after seven years of a zero interest rate policy. Stock values against earnings are somewhat high, and earnings estimates are coming lower across the board, making the expected price-to-earnings (P/E) ratios even higher than prior views.

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