Wall Street Firms Slash S&P 500 Price Targets As ‘Concerned’ Analysts Warn Of Earnings Slowdown

A handful of Wall Street’s biggest firms are slashing their S&P 500 forecasts for the year, predicting lower stock market returns thanks to a difficult quarterly earnings season ahead as companies wrestle with surging inflation and rising interest rates.

With the stock market down roughly 20% so far this year amid fears of a looming recession, there are “lots of reasons to be concerned” about upcoming corporate earnings—with an incoming “flurry of downward revisions,” Bank of America warned in a recent note.

Though quarterly earnings season has just started, Wall Street analysts are slashing forecasts—with seven out of 11 S&P 500 sectors facing reduced earnings estimates, according to FactSet data. UBS on Monday slashed its earnings forecasts due to slowing economic growth and rising costs, with the firm also reducing its year-end price target for the S&P 500 to 4,150—down from a previous estimate of 4,850.

Evercore ISI also cut its year-end S&P 500 target the same day, to 4,200 from 4,300, as analysts sounded the alarm on corporate margins and earnings being “under pressure as prospective recession scenarios develop.”One of Wall Street’s biggest bears (who has also warned of further downward earnings revisions) is Morgan Stanley chief strategist Mike Wilson who is maintaining a year-end S&P 500 target of just 3,900, while also predicting the index could fall as low as 3,000 if a recession hits.

Even some of Wall Street’s most optimistic strategists are slashing their S&P forecasts somewhat, including Oppenheimer chief investment strategist John Stoltzfus, who reduced his estimate to 4,800 from 5,330 amid “palpable risks of recession.”

Despite the gloomier forecasts recently, most Wall Street firms still predict a market rebound by the end of 2022, with the majority of price targets implying modest upside from the S&P 500’s current level of around 3,850. UBS and Evercore ISI’s most recent forecasts for the benchmark index both imply roughly 8% upside from current prices, while Oppenheimer’s price target suggests the market will rally nearly 25%. Even Morgan Stanley’s bearish outlook of 3,900 would mean stocks post a slight gain by the end of the year..

Even as recession fears remain front and center, not all Wall Street firms are forecasting an economic downturn. Analysts at Credit Suisse, for instance, also slashed their S&P 500 price target (to 4,300 from 4,900) but argued that the economy’s current slowdown is not recessionary. “Recessions are most accurately characterized by a meltdown in employment accompanied by an inability of consumers and businesses to meet their financial obligations,” Credit Suisse analyst Jonathan Golub said in a note on Tuesday.

“While we are currently experiencing a meaningful slowdown in economic growth (from extremely high levels), neither of the above conditions are present today.” UBS strategist Keith Parker similarly sees slowing growth “but no recession,” with modest gains for the stock market ahead as he predicts high inflation will eventually subside.

Investors remain “nervous” about the upcoming inflation report on Wednesday, with experts predicting that consumer prices for June will surge higher than the 8.6% recorded in May.

I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaires and their wealth.

Source: Wall Street Firms Slash S&P 500 Price Targets As ‘Concerned’ Analysts Warn Of Earnings Slowdown

Critics:

The S&P 500 Index (US500) has reacted to the US Federal Reserve (Fed)’s ultra-hawkish stance by shedding over 20% in the first six months of 2022. 

As Fed chair Jerome Powell puts his foot on the pedal and accelerates quantitative tightening, investors now fear that decreasing money supply will push the US economy into a recession. Analysts remain divided on the likelihood of a recession as they await economic data, which remains key in anticipating the severity of rate hikes in the second half of the year.

S&P Global summed up the current market sentiment in its third quarter US economic outlook report: “We expect that the Fed raising interest rates and reducing its balance sheet will be enough to eventually begin to tame inflation and help restore real wage strength and purchasing power. The question is whether it will push the US into recession as well.”

After hitting its lowest level since December 2020, the S&P 500 rebounded by over 6% in the fourth week of June, breaking a three-week losing streak in the process as short squeezes caught bears off guard. Jefferies called the current market sentiment “extreme” in a note dated 27 June, having seen net S&P 500 futures turn to net short, according to the Commodity Futures Trading Commission’s (CFTC) S&P 500 speculative net positions data for week ended 24 June.

“Thoroughly depressed sentiment, an extreme in short positions and rising cash levels are creating a vicious short squeeze,” said Sean Darby, global equity strategist at Jefferies. Despite seeing a recent rally in prices, the S&P 500 posted losses of close to 9% in June. As of 6 July 2022, the US benchmark index has lost close to 20% year-to-date (YTD).
In comparison, the tech-heavy Nasdaq Composite Index has slumped nearly 30% in the same period, while the Dow Jones Industrial Average index has shed about 15%. Based on the 5 July close of 3,831.4, the S&P 500 remains below its 200-day exponential moving average (EMA) of 3866.9.  After dropping to near oversold zones on 16 June, the index’s 14-day Relative Strength Index (RSI) has risen to a near-neutral zone of 56 points, as of 6 July.

The Jefferies report said that “investors are now holding high levels of cash after one of the worst drawdowns in modern history”. The report showed that the S&P 500’s 12-month forward price-to-earnings was “just above” its long-term average.  “The multiple correction has been driven by long rates and not necessarily earnings revisions,” added Jefferies. As of 6 July 2022, the S&P 500 index was about 20% away from its all-time high of 4,818, which it reached on 3 January 2022.

By Mensholong Lepcha

Related contents:

S&P 500 Loses Over 1% As Investors Brace For Shaky Earnings Season, Looming Inflation Report

Stocks Fall After U.S. Economy Adds Back 372,000 Jobs In June

Federal Reserve Prepares More Big Rate Hikes Amid Risk That High Inflation Could ‘Become Entrenched’

Stocks Close Out Worst First Half Of A Year Since 1970

Wall Street Chooses an Odd Time to Be Upbeat About Growth Stocks 

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The World’s Best Banks 2022: As Covid Recedes, Banks Get A Boost From Higher Rates But Inflation Could Spoil The Party

After more than a decade of declining interest rates, the Federal Reserve announced a quarter-point rate hike last month, the first since 2018, and signaled more to come in 2022, as many as six, in order to combat inflation.

This should improve banks ability to earn net interest margin, the lifeblood of most banks from an earnings standpoint and could be mimicked in other large economies at a time when inflation is causing damage to global economies and other central banks look to take similar action.

Mike Mayo, managing director and head of U.S. large-cap bank research at Wells Fargo Securities, says that 2021 was a strong year for large investment banks that could aggressively take advantage of a bull market and tailwinds of a soaring stock market.

However, Mayo says 2022, with its troubled markets, will produce headwinds for those financial titans and serve as a “passing of the baton in the banking industry” to Main Street banks that will thrive amidst the pandemic recovery that brings along more volumes of deposit and loans along with the aforementioned rising interest rates.

As the world emerges from two difficult pandemic years, the U.S. the economy has improved dramatically at a breakneck pace. Gross Domestic Product grew at 5.7% in 2021. However, the pandemic has left behind supply chain challenges and outsize inflation that keeps hitting new highs, the latest being a 8.5% measurement for March, the highest since 1981.

Despite runaway inflation, economists think inflation will soon recede. Swiss banking giant UBS is predicting that inflation for the rest of 2022 will drop to as low as 3.4% by December.

“The US economy is coming online faster and stronger than other parts of the world,” Mayo says. “As a result we will likely see a pickup in Main Street banking in terms of companies increasing their buildup of inventory and their capital expenditures and consumers drawing down their excess savings to spend and travel.”

Bank stocks have had an underwhelming run in early 2022. While there have been marketwide struggles, the S&P 500 is down nearly 6.7% year to date, financial stocks have suffered even greater losses with the iShares U.S. Regional Bank ETF down 9.18% year to date. This comes on the heels of a strong year for bank stocks, with that same iShares ETF up 38.9% last year, outpacing the S&P 500 at 26.89% in 2021.

“We are facing challenges at every turn: a pandemic, unprecedented government actions, a strong recovery after a sharp and deep global recession, a highly polarized U.S. election, mounting inflation, a war in Ukraine and dramatic economic sanctions against Russia,” said Jamie Dimon, CEO of the largest bank in the U.S. JPMorgan Chase JPM , in his annual letter to investors.

Looking forward, Dimon said he does not envy the Fed because it is likely to have to raise rates significantly higher than expected. While Dimon struck an optimistic tone that “if the Fed gets it just right, we can have years of growth, and inflation will eventually start to recede,” he conceded that the road to those greener pastures will be paved with consternation and volatility.

“The Fed should not worry about volatile markets unless they affect the actual economy. A strong economy trumps market volatility,” he added.

Outside the U.S., the economic recovery from the pandemic has not been as rapid, particularly in the world’s second largest economy, China, where a policy of “zero Covid” and less effective vaccinations than Western nations has led to a seemingly unending pandemic and shutdowns as recently as this month in Shanghai.

In the midst of global turmoil and a naggingly persistent pandemic, Forbes’ fourth annual list of the World’s Best Banks, which is published in partnership with market research firm Statista, surveys more than 45,000 customers in 27 countries to determine its ranking. Survey participants were asked their opinions on both their current and former banking relationships, defined as all financial institutions that offer a checking and/or savings account.

Click here for the Forbes list of World’s Best Banks.

Banks were rated on overall recommendation and satisfaction which were weighted the most as well as five other subdimensions: trust; terms and conditions; digital services; customer services; and financial advice.

The results yielded between 5 and 75 banks per country with a minimum score of 70 out of 100 and selected depending on the score achieved, the number of evaluations collected, the number of active banks in the specific country as well as the respective population in the country and number of banks with enough evaluations.

The U.S. has the largest number of awarded banks at 75, followed by Japan with 45 and Germany with 35 while 7 countries had the lowest number of 5. There were 27 countries with awarded banks.

The top five banks from the U.S. were Lincoln, Nebraska based Union Bank & Trust, Fargo, North Dakota-based Gate City Bank, Georgia-based United Community Bank UCBI , USAA, a lender open to members of the U.S. military and their families, making the cut as well as Boston-based Eastern Bank Corporation, a sign of the strength of regional banking with all but USAA having less than 2500 employees.

In Japan, SBI Sumishin Net Bank, an internet bank founded in 2007 by SBI Holdings and Sumitomo Mitsui Trust Bank, which was also listed, took the top spot showing the strength of upstart banks leading into the fintech space.

The top German bank was Sparda-Bank Hessen, a subsidiary of a series of cooperative banks known as Sparda-Banken that has a small employee count of 254 and was founded in 1897.

I’m a wealth management staff writer at Forbes based in New York. Prior to joining Forbes, I was on the same beat for Private Asset Management. I also

Source: The World’s Best Banks 2022: As Covid Recedes, Banks Get A Boost From Higher Rates But Inflation Could Spoil The Party

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European Electric Car Sales Growth Will Slow Before Spurting, While China Lurks

Sales of battery electric vehicles (BEVs) are exploding in Western Europe, but growth will slow over the next couple of years, restrained by the semiconductor shortage, and actions by manufacturers who will seek to push demand for internal combustion engine (ICE) powered vehicles before European Union regulations destroys ICE profitability.

Tesla TSLA +1.6% will retain its lead in BEV sales and profitability and only the best of traditional manufacturers like VW and Mercedes look like posing a serious challenge.

Meanwhile, Chinese carmakers, which tried and failed to penetrate Europe markets with traditional ICE cars, look like being much more of a threat with electric ones.

In Western Europe, BEVs are now linked with big numbers. Recently, sales passed one million in the year, while Germany recently announced there were now 1 million BEVs on its roads. BMW announced in early December it had sold its 1 millionth electric vehicle and plans to reach 2 million by 2025.

Western Europe includes the big markets of Germany, Britain, France, Italy and Spain.

BEV sales more than doubled in 2020 to just under 750,000 and jumped again this year with sales of 1,143,000, according to Schmidt Automotive Research, representing a market share of 10.3%. The pace of growth will slow though with market share rising to 12.0% in 2022, 13e.0% in 2023 and 15.0% in 2024, before jumping 5 points to 20.0% in 2025 and an estimated total of 2,860,000.

Fitch Ratings warns that even though the number of available electric cars and SUVs is increasing and battery technology is improving, range anxiety is still an issue, and a slow expansion of the charging infrastructure could impede a major step-up in EV sales.

In addition, EV profitability does not yet match that of ICE vehicles and (manufacturers) earnings and cash flows will remain burdened by further heavy technology investments over the next several years,” Fitch Ratings said in a report.

“Margin dilution from a higher share of EVs has been manageable for carmakers as government subsidies enticed EV buyers, but a gradual removal of the incentives could weigh on profitability in the medium term, diluting manufacturers’ margins but helping them to avoid (excess CO2) fines (from the EU). We also expect greater competition for European carmakers from new entrants, notably China,” Fitch Ratings said.

According to David Leah, analyst with LMC Automotive, the number of Chinese electric models in Europe has more than doubled over five years and government backing at home has given them a competitive advantage.

“This has allowed Chinese (manufacturers) to develop more competitive battery technology, as well as control large parts of the battery material chain, thus enabling them to achieve greater economies of scale. BEV prices have halved in China during the last 8 years, whilst increasing by 42%-55% in the West,” Leah said.

“As a result, Western (manufacturers) are playing catch up in the mass market BEV space, and the growing threat of new entrants has forced Western companies to reassess their competitiveness as competition intensifies,” Leah said.

Prospects for BEV sales won’t have been helped by news Wednesday one of the biggest selling electric cars in Europe, the Renault Zoe, was awarded zero stars in the Euro NCAP safety ratings, and the Dacia Spring only 1 star. Dacia is Renault’s value brand which uses mainly old technology to cut prices to the bone. Most modern vehicles score 5 stars in these tests.

Investment bank UBS expects strong global BEV sales, with Tesla remaining the undisputed leader.

“In 2021, Tesla has gapped away further from all others in terms of volume growth and margins, and Tesla’s lead should be undisputed in 2022 as battery cell supply could emerge as the next bottleneck for the industry,” UBS analyst Patrick Hummel said in a report.

“We expect global BEV sales to grow by about 60% again in 2022, reaching 7 million or 8% share globally. Only the fastest moving (traditional manufacturers) can avoid further bleeding to Tesla, such as Mercedes-Benz and VW Group. As BEV demand will likely continue to exceed supply, BEV pricing will be very solid and therefore margin parity vs. ICE cars reached over the next 1-2 years,” Hummel said.

And Schmidt Automotive Research said the slowing in BEV market share to 2024 is the result of manufacturers seeing a window to push profitable ICE vehicle sales before EU regulations on CO2 tighten. More regulation in 2027 will have a similar impact before BEV demand wins again, as ICE profit margins disintegrate.

Schmidt Automotive reckons BEV sales will gradually accelerate again and reach a market share of 60.0% by 2030, or 8.4 million vehicles.  VW has said its European BEV sales will hit 70% by 2030 while Ford Europe and Jaguar have set a 100% target.

Follow me on Twitter. Check out my website.

As a former European Automotive correspondent for Reuters, I’ve a spent a few years writing about the industry. I will penetrate the corporate

Source: European Electric Car Sales Growth Will Slow Before Spurting, While China Lurks

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Credit Suisse To Tighten The Reins After String of Scandals

Credit Suisse will unveil a new centralized structure on Thursday in an attempt to bring its far-flung divisions to heel and draw a line under a string of scandals that have cost the Swiss bank billions of dollars, two sources said.

Over the past year, Credit Suisse has been fined for arranging a fraudulent loan to Mozambique, tarnished by its involvement with defunct financier Greensill, racked up $5.5 billion in losses when U.S. family office Archegos collapsed, and been rebuked by regulators for spying on executives.

Credit Suisse drafted in seasoned banker Antonio Horta-Osorio as chairman in April to stop the rot and he will lay out his charter to reform Switzerland’s second-biggest bank on Thursday when it presents third-quarter results.

One key change is expected to be the creation of a single wealth management division that caters to a global elite, centralizing oversight at the bank’s headquarters in Zurich, two people familiar with the matter told Reuters.

Under the current structure put in place six years ago, wealth management straddles three divisions: a Swiss business, an Asia-Pacific arm catering mainly to rich Chinese and an international arm based out of Switzerland.

Merging the wealth division would make Credit Suisse simpler and potentially pave the way for cost cuts.It would also rein in local bankers who have enjoyed much autonomy, making them more answerable to senior managers who have often been blindsided by the risks that triggered past scandals, the sources said.

One of the people told Reuters that managers at the bank’s headquarters had become very risk averse and they did not want to give leeway to local bankers, regardless of how much profit they were making. A spokesman for Credit Suisse declined to comment.

Credit Suisse’s financial humiliation stands in stark contrast to its cross-town rival UBS (UBSG.S). In the wake of massive losses and a bailout during the financial crisis, UBS successfully pivoted away from investment banking to wealth management and is now the world’s largest wealth manager with $3.2 trillion in invested assets.

Its shares have climbed 57% in the past 10 years while Credit Suisse has slumped 53% over the same period.Shareholders have deserted Credit Suisse this year following the slew of bad headlines. Its shares are down 12% while UBS is up 36% while Wall Street rivals are riding high on the back of a boom in equity trading and M&A.

Andreas Venditti, an analyst at Swiss private bank Vontobel, said it would take more than “minor changes and a new divisional set-up” at Credit Suisse to reverse the trend.The expected revamp at Credit Suisse has also encouraged some high-profile dealmakers to approach the bank’s senior management to suggest it merges with a rival, another person with knowledge of the matter said.

Those ideas have been rejected so far, however, the person said. Nonetheless, the prospect of a challenge by investors demanding the break-up of the bank, or that its shrinking market value makes it a target for a hostile foreign takeover, have long troubled managers, sources told Reuters earlier this year.

‘WARNING SIGNALS’

With a market value of $28 billion, Credit Suisse is worth less than half of UBS and a fraction of Wall Street giants such as JPMorgan (JPM.N) weighing in at half a trillion dollars. But an approach from the United States would not go down well in Switzerland. Relations between Swiss banks and Washington were damaged when the United States pressured them into giving up their strict secrecy code more than a decade ago.

A combination of Credit Suisse and UBS, which has been touted as an alternative alliance, would face its own problems. For one, it would dominate the Swiss market. Another source said that while Credit Suisse had examined a sale or spin-off of its asset management business, that had been shelved. The person said, however, that once further efforts were made to cut costs and boost growth, a sale, or listing of the business on the market, could be back on the cards.

The bank’s drive to centralize its operations is drawing on lessons from some of its recent failures, including Archegos. Earlier this year, Credit Suisse published a report blaming a focus on maximizing short-term profits and enabling “voracious risk-taking” by Archegos for failing to steer the bank away from catastrophe.

Despite long-running discussions about Archegos – by far the bank’s largest hedge fund client – Credit Suisse’s top management were apparently unaware of the risks it was taking.

The bank’s chief risk officer and the head of its investment bank recall hearing about it first only on the eve of the fund’s collapse. “There were numerous warning signals,” the report said. “Yet the business … failed to heed these signs.”

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Source: Credit Suisse to tighten the reins after string of scandals | Reuters

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Related Contents:

B. H. Meyer; Hans Dietler (1899). “The Regulation and Nationalization of the Swiss Railways

Hill, Kelly (1999). Cases in Corporate Acquisitions, Buyouts, Mergers, and Takeovers. Gale. ISBN 0-7876-3894-3.

Atkinson, Mark (4 August 2000). “Swiss banks agree $1.25bn Holocaust deal”. The Guardian

Grant, Linda (19 August 1996). “Will CS First Boston Ever Win?”. Fortune. pp. 30–34. Archived from the original

Strom, Stephanie (30 July 1999). “Japan Revokes Credit Suisse Unit’s Banking License”. The New York Times.

Kandell, Jonathan (March 2012). “Swiss Banks Adjusting To Radical New Regulations”. Institutional Investor. Vol. 46 no. 2. p. 33.

Crawford, David (8 November 2012). “Germany Probes UBS Staff on Tax-Evasion Allegations”. The Wall

Owen Walker (30 July 2020). “Credit Suisse launches restructuring after trading profit boost

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