Credit Suisse just downgraded stocks.
In a note to clients on Tuesday, Credit Suisse analyst Andrew Garthwaite took his mid-year and year-end forecasts for the S&P 500 down to 2,100 and 2,150, respectively.
On Monday, the S&P 500 closed at 2,046. So Garthwaite expects that gains through the end of this year will be just 5%, ending a four-year streak of double-digit gains for the benchmark US stock index.
Previously, Garthwaite had been expecting the S&P 500 to hit 2,250 at mid-year and end the year at 2,200.
In his note, Garthwaite highlights four near-term red flags for the stock market:
- US and global earnings revision are at 6- and 3-year lows respectively, levels which have been associated with flat markets in the past.
- High-yield spreads have risen more than they normally do prior to a bear market.
- Equities have re-rated while inflation expectations have fallen, which is unusual.
- The macro environment is less supportive: Chinese data is deteriorating, US wage growth is rising (hurting US margins), and Greek brinkmanship will likely continue to July.
Equity markets are still in a bull market, however, and Garthwaite maintained his year-end price targets of 3,600 and 19,500 for the Eurostoxx and Nikkei indexes, respectively.
“We believe that equities will ultimately ride through the near-term risks we discuss … and we do not believe the equity bull market is over,” Garthwaite writes.
“The two key fundamental supports for equities are valuation (we think the equity risk premium prices in a lot more risk than any other major asset class), and the potential for central banks to respond to deflationary growth shocks with further injections of liquidity.”
But the big gains will not be there for investors in 2015.