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Aug 25 (Reuters) – Wall Street records could be called into question as a strong recovery in corporate profits from the coronavirus pandemic loses its edge, according to a Reuters poll of strategists.
With growing pressure for the US Federal Reserve to scale back its huge pandemic-era stimulus, the S&P 500 (.SPX) is expected to end 2021 at 4,500 points, essentially unchanged from its current level, according to the median forecast by More of 40 respondents.
Strategists have historically had a poor track record of predicting stock returns, but their forecasts provide valuable insight into sentiment on Wall Street. Wealth managers and strategists in the previous Reuters poll in May predicted on average that the S&P 500 would end the year at 4,300, about 4% below Monday’s close of 4,479.53.
The poll showed that strategists on average expected the Dow Jones Industrial Average (.DJIA) to end 2021 at 36,000 points, up almost 2% from its current level.
“The market is currently being dragged down by huge government stimulus and low interest rates. But this cannot go on forever,” warned Dan Morgan, senior portfolio manager of Synovus Trust.
Second-quarter profits jumped 95% year-on-year for S&P 500 companies as the US economy recovered from lockdowns linked to the coronavirus pandemic, with industries and consumer discretionary increasing 678% and 356 respectively %, according to IBES data from Réfinitif.
However, this explosive recovery seems to have already lost momentum. Analysts now see, on average, September quarter earnings growing only 30% for S&P 500 companies.
As social media investors fuel the trading frenzy in so-called memes stocks like AMC Entertainment (AMC.N) and GameStop (GME.N), and with the S&P 500 up 19% since the start of the year. year, several survey strategists warned the US stock market was overheated and headed for a correction.
“We believe domestic stocks are eagerly anticipated for a decline of at least 10%,” said Robert Phipps, director of Per Stirling Capital Management. “We believe the same is true for European markets.”
The S&P 500 is trading at 21 times expected earnings, down from 23 a year ago, but still well above its 10-year average of 16 times expected earnings, according to data from Refinitiv.
Poll strategists also predicted on average that the S&P 500 would only rise about 3% from its current level by the end of June.
Adding to concerns, higher wages, increased consumer demand and a global supply chain that has yet to recover from the pandemic have created a spike in inflation. This has led to fears that the Fed may be forced to act sooner than expected to tighten monetary policy. Investors will watch the Fed’s annual economic symposium in Jackson Hole, Wyoming, on Friday for clues as to when this could happen.
“Right now, things are about as clear as the mud when it comes to the reopening, the direction of interest rates, the Fed’s comments to Jackson Hole and the continued outperformance of tech stocks,” said Michael James, Managing Director of Equity Operations at Wedbush Securities in Los Angèle.
(Other articles from the Reuters Q3 Global Stock Market Survey:)
Reporting by Noel Randewich in Oakland, California; additional reporting from Herb Lash, Sinead Carew, Stephen Culp and Alden Bentley in New York; additional surveys by Sujith Pai and Indradip Ghosh in Bengaluru; edited by Jonathan Oatis
Our Standards: Thomson Reuters Trust Principles.