- Wall Street strategists are adjusting S&P 500 (^GSPC) year-end targets downward, with RBC’s Lori Calvasina cutting hers from 6600 to 6200, citing a potential GDP slowdown to 1-2% or lower, which isn’t fully priced into the market yet.
- Despite options market signals of stabilization, with hedging costs at a two-year low, sentiment remains cautious as valuations have normalized but not turned cheap, and investor positioning isn’t bearish enough to signal a clear bottom.
- Uncertainty around the April 2 tariff deadline and Friday’s rally led by quantum and AI stocks rather than quality names keep strategists hesitant, suggesting a choppy near-term outlook despite possible year-end gains.
Wall Street experts are recalibrating their expectations for the S&P 500 (^GSPC) as the year progresses, with Yahoo Finance senior markets reporter Josh Schafer shedding light on the shifting sentiment during his appearance on The Morning Brief. Despite the options market hinting at a potential stabilization – evidenced by the cost of hedging against a 10% drop in the S&P 500 Spy ETF hitting a two-year low relative to contracts betting on a 10% rally – strategists remain cautious about calling a market bottom. Schafer noted that while surveys like the AAII reflect a bearish tilt among investors, actual market positioning and money flows may not yet be pessimistic enough to signal a clear buying opportunity. Valuations, once stretched, have moderated to a more normal range, but few are ready to declare big tech, the “Magnificent 7,” or the broader S&P 500 as bargains, tempering enthusiasm for an immediate rebound.
Economic growth concerns are also weighing heavily on forecasts, as strategists grapple with the possibility of a sharper-than-expected slowdown. Schafer highlighted RBC Capital Markets’ Lori Calvasina, who recently lowered her S&P 500 year-end target from 6600 to 6200 – still a notable increase from current levels of 5,719 – while cutting her GDP growth projection from the 2-3% range to 1-2%. She raised a critical question: what if GDP dips below 1%? Such a scenario, not yet fully priced into the market, could keep stocks choppy in the near term, even if they close the year higher. Adding to the uncertainty, the looming April 2 tariff deadline under a new administration injects further complexity, with potential aggressive trade policies possibly prompting a more forceful Federal Reserve easing cycle, as flagged by PGIM’s Tom Porcelli. Schafer emphasized that timing a market bottom before this date feels like a risky bet for many, given the unresolved cloud of uncertainty.
Friday’s market action, driven by quantum and AI stocks rather than high-quality names, did little to inspire confidence among strategists, who see little evidence of a robust, broad-based recovery. With valuations no longer screaming overextension and economic data still vulnerable to downside surprises, the consensus leans toward cautious nibbling rather than bold dip-buying. Schafer’s insights underscore a market in flux—caught between signs of stabilization and the risk of further turbulence as Wall Street braces for a potentially transformative policy shift and its economic fallout.
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