NEW YORK -- A growing number of Wall Street strategists who started the year with high hopes for double-digit gains in the stock market are slashing their return forecasts, with some now expecting stocks to finish 2011 in the red.
The lower price targets are an acknowledgment that the crisis of confidence caused by political problems in Washington, the fallout from Europe's sovereign debt crisis and rising fears that the U.S. economy will fall back into recession and drag down corporate profits, is too much for the market to overcome.
In recent days, Wells Fargo, Barclays Capital, UBS and Yardeni Research admitted that their earlier market optimism has been dashed and that they were lowering their expectations for returns. The less-bullish stances follow similar moves last month by Credit Suisse and Goldman Sachs.
Citing economic uncertainty and a potential drop in earnings, Wells Fargo's Gina Martin Adams cut her year-end target for the Standard & Poor's 500 index to 1250 from 1390. While her updated target equates to a gain of almost 7% from Tuesday's close of 1173, it would mean stocks would finish down about 1% for the year, far weaker than the 10% gain she predicted at the start of the year. The S&P 500 is down 6.7% in 2011.
Ed Yardeni of Yardeni Research slashed his 2011 target from 1250 to 1150. That downgraded prediction would mean a 2% drop from current levels. He warns that "Europe's economy may be falling into recession," which means current profit projections for U.S. companies must come down.
UBS strategists reduced their estimate for stock gains less dramatically, citing a reduction in 2012 global growth estimates and a sharp decline in U.S. manufacturing. They still expect stocks to rally 15% and finish the year at 1350.
The most bearish forecast comes from Douglas Cliggott at Credit Suisse, who downgraded his year-end target to 1100, or a further drop of 6%.
"The (economic) facts have changed," he told clients.
Barclays Capital's Barry Knapp blames his less bullish outlook on "diminished" success of further stimulus efforts from the Federal Reserve.