Yikes.We officially have our most bearish year-end target for the S&P 500.
Morgan Stanley’s Adam Parker just released 2012 Playbook and he calls for the S&P 500 closing the year at 1,167, which represents almost a 10% decline from today’s trading levels.
“While 2011 was about multiple contraction, and further contraction is likely, we think 2012 and 2013 are likely more about earnings than the multiple,” he wrote.
In his note, Parker lowered his 2012 EPS estimate to $100 from $103.
Here are the reasons behind his EPS revision:
1) We see global GDP decelerating over the next few months in nearly every major geography. 2) Recent company results have been weak, with companies like TXN, INTC, MU, ORCL, CRM, RHT, DRI, COST, FDX, and WAG reducing their outlook. This likely portends weak January results or April guidance. 3) The dollar has materially strengthened against the euro over the last few months and our analysis shows this is highly correlated to earnings downside, with select staples, technology, and materials likely impacted. Furthermore, inventory levels remain crucial, as several industries now have inventory-to-sales ratios well above five-year averages. With record high cash balances, we see capital use and its consequences as key, with dividend yield likely a continued successful factor. CVX, JPM, TGT, BEN, CBS, WU, SPLS, and ABC are our top ideas for sustainable yield.
Parker called for the S&P 500 to close 2011 at 1,238, making him one of the most accurate, albeit bearish, strategists on the street. Will he be right this time?