Citigroup Slashes S&P 500 Forecast After Worst Year in Decade
(Bloomberg) -- Citigroup’s Tobias Levkovich is the latest Wall Street bull adjusting his outlook after the equity sell-off.
The bank’s chief U.S. equity strategist cut his 2019 year-end forecast for the S&P 500 to 2,850 from 3,100, saying only one of the firm’s dozen valuation models now supports the old target after the S&P 500 plunged 14 percent last quarter.
While the new prediction still sees a 14 percent rally this year, it trails the average estimate of 2,975 from the latest Bloomberg survey of strategists.
“A roughly 25 percent jump in the index by next December now looks overly aggressive as our prior price target was set when the markets were higher,” Levkovich wrote in a note published late Monday. “While one predictor still suggests that our prior 3,100 target is achievable, most of the other factors do not and we believe that a 2,850 S&P 500 target is more reasonable.”
Levkovich joined a growing chorus of professional forecasters scaling back optimism after their average 2018 prediction over-estimated the S&P 500’s return by almost 400 points. Others who have reduced their projections include: Barry Bannister at Stifel Nicolaus, Jonathan Golub at Credit Suisse, Sanford C Bernstein’s Noah Weisberger, and Chris Harvey at Wells Fargo.
The new round of downgrades contrasts with a year ago, when strategists rushed to raise their targets amid an equity rally spurred by tax cuts. Now, fears of a recession are surfacing amid intensified U.S.-China trade tensions and a fourth rate hike by the Federal Reserve. The S&P 500 fell to the brink of a bear market in December, ending 2018 down 6.2 percent, the worst year since the 2008 financial crisis.
Volatility is likely to persist into the new year amid monetary tightening, but worries over a collapse in the economy and profits are overdone, according to Levkovich. The firm’s sentiment gauge, which reached euphoria just before the fourth-quarter sell-off, has swung to panic. In addition, the average analyst estimate for 2019 profit growth has come down to 8 percent from 12 percent three months ago, approaching Citi’s estimate of 6 percent.
“The painful ‘reset’ appears near completion,” Levkovich wrote. “Nothing is guaranteed, but the data suggest that we should be buying into current weakness.”
The strategist lowered his 2019 projection for the Dow Jones Industrial Average to 26,000 from 28,100. The gauge ended last year at 23,327.
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