NEW YORK (Reuters) - The worst is over for U.S. stocks, if new predictions by top Wall Street strategists are to be believed.
Though the market's recent rout has forced many to slash their year-end expectations, a new Reuters poll shows the S&P 500 stock index .SPX .INX ending 2015 roughly 11 percent higher than where it was trading on Tuesday.
The median forecast of 40 strategists polled over the last week by Reuters would put the S&P 500 at 2,094 at year end. That would be an increase of less than 2 percent for the year, a sharp reduction from the 7 percent gain these strategists were expecting when last polled at the end of the second quarter.
Still, the index is now down 8.5 percent from 2014’s close, and it would have to stage a strong fourth-quarter rally to meet that target, which would be the lowest annual increase for the index since 2011, when it ended nearly unchanged.
This week alone, both Goldman Sachs and RBC Capital Markets joined the long list of banks cutting their outlooks for both stocks and earnings of S&P 500 companies, as worries about slower global growth and still-falling oil prices weighed. S&P 500 earnings are expected to decline in the third quarter for the first time since 2009.
“Slower economic growth in the U.S. and China and a lower oil price than we previously assumed translate into a reduced profit forecast and a lower trajectory for U.S. stocks,” wrote analysts for Goldman Sachs, which cut its year-end S&P 500 target to 2,000 from 2,100.
More than half of the strategists have reduced their targets since they were polled in June.
For U.S. stocks, the July-September period is on track to be the S&P 500’s worst quarter in four years. Little 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.
Selling of stocks accelerated after the Federal Reserve’s decision to hold off on raising rates at its September meeting. The U.S. central bank kept on the table the issue of when the first 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. [FED/R]
Many strategists also cited worries about a further slowdown in China, which could hit earnings for U.S. multinationals.
“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 and other concerns. Third-quarter S&P 500 earnings now are expected to drop 4.3 percent from a year ago, while profits for the year are forecast to rise just 0.3 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 .DJI 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.
Additional reporting by Noel Randewich in San Francisco, and Sinead Carew, Chuck Mikolajczak and Tariro Mzezewa in New York; editing by Chizu Nomiyama and David Gregorio