Many strategists haven’t expected big gains in the stock market for the rest of the year. Now investors are signaling weak confidence in stocks from here.
Strategists do expect a weak market for the coming quarters. Their average price target on the S&P 500 index is a touch above $4,150, according to Citigroup data. That’s a roughly 3% drop from the index’s current level. Even the more-bullish strategists aren’t exactly giving a vote of confidence to the market;Jefferies recently raised its price target on the index to $4,350, which represents a mere gain of about 1%.
But what’s more worrisome is that investors—the people who actually buy and sell shares, and move the market—are also now pessimistic on stocks. Citi’s survey of almost 70 institutional funds shows that on average money managers see the S&P 500 price target falling to $4,269 by the end of this year. That’s a 0.6% drop from here. Just over a quarter of survey respondents said the top two risks are inflation, and a Federal Reserve policy mistake. Less than 10% of participants said the biggest risks lie elsewhere.
That finding is consistent with recent market behavior and commentary. If recent inflation is persistent enough, it could wipe off more than 15% from the S&P 500, as higher inflation erodes the value of future profits. If the Fed, in response, hikes interest rates too quickly, it could dent growth—and recently the stocks that are most sensitive to the perceived health of the economy have underperformed.
One point of optimism, though, is that the S&P 500 hit several new highs this week, indicating that it still has more juice. To be sure,technical analysis shows the index could rise at least 3% from here—and maybe it can. Stocks could conceivably keep rising in the short-term.
But investors are nervous about looming risks that could bring stocks down by year-end.