Wall Street strategists have cut 2015 targets for the S&P 500 amid concerns about slower global growth and an uncertain US rate outlook, but still expect the benchmark index to recover from a recent rout, a Reuters poll found. The S&P 500 will end the year at 2,094, according to the median forecast of more than 40 strategists polled by Reuters in the past week.
That year-end target would represent just under a 2 percent gain from 2014's close - the lowest annual increase for the index since 2011, when it ended nearly unchanged - but an 11 percent gain from Monday's close of 1,881.77. That is below the median forecast of 2,202 in a June poll, with more than half of the strategists reducing their targets since then. Among the latest, RBC Capital Markets on Monday cut its year-end S&P 500 target to 2,100 from 2,325.
US stocks are down around 9 percent this year, with July-September on track to be the S&P 500's worst quarter in four years. No improvement is expected in the first half of next year. The S&P 500 is forecast at 2,100 for mid-year 2016, the poll found. "The stock market needs a catalyst to go higher. We can't rely on the Fed. The Fed might sit on their hands for the rest of the year, which is not what the stock market wants," said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston, which oversees more than $11.3 billion.
The Federal Reserve's decision to hold off on raising rates at its September meeting increased selling in stocks, keeping on the table the issue of when the first US rate hike in nearly a decade may take place. A recent Reuters poll showed the majority of Wall Street's top banks now see the Fed acting in December. Still, many strategists consider a further slowdown in China and weaker global growth the biggest risks for the market at the moment, while several cited the weak earnings outlook.
"While the Chinese central bank has cut rates and policymakers have adopted a range of measures to stabilize the markets and boost the economy, further signs that these measures are not working and the economy deteriorating significantly will be a big risk to global equity markets," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey. S&P 500 earnings estimates for 2015 have fallen since the start of the year as analysts have factored in the impact of falling oil prices and weaker global demand on US companies. Profit growth for the year is now forecast to rise just 0.6 percent from 2014, Thomson Reuters data showed. The S&P 500's forward price-to-earnings ratio stands at 15.8, well below this year's peak of 17.8 but above the historic mean of about 15, according to Thomson Reuters data.
Among sectors, some analysts like financials, which are likely to benefit from a higher rate environment. The Dow Jones industrial average is expected to rise to 17,532 by year-end, around 10 percent higher than Monday's close but well below the June target of 19,000.
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