In recent weeks, the benchmark S&P 500 has gained nearly 10% after President Trump accepted a 90 day pause for almost all tariffs except those imposed against China.
The White House has also exempted electronics from tariffs.
According to Wolfe Research’s senior analyst, even if US economic growth slides into recession by year-end, it could cause the benchmark index to crash as low as 3,700.
According to the firm, SPX will decline by about 33% from its current level.
Wolfe is a super-bearish S&P 500 Index
Chris Senyek, Wolfe’s analyst warns that the S&P 500 will be impacted by a steep decline even if there is a mild recession in 2025.
Senyek believes that Trump’s tariffs, and the retaliation by other countries could have a major impact on corporate earnings in 2018.
In a recent research note, he informed clients that the benchmark EPS estimate will drop by up to 15%, from $266. “This is in line with the 16.7% median peak-to-trough EPS over the last four recessions,” he said.
SPX has already fallen by about 10% from its February high for the year.
The Q1 earnings have been positive so far
Multiple contractions could be seen in corporate earnings by 2025 if material uncertainties are to blame.
Senyek’s report states that “if we apply the average 15Y price-to earnings (P/E), which is 16.6x, to $225 in recessionary EPS type, then this would imply a level of about 3,700 for the S&P 500 during a mild depression.”
The first quarter earnings season is off to a good start.
About 160 S&P companies have already reported, and 76% of them have exceeded expectations.
The blended rate of growth is currently at 8.2%, which is significantly higher than the 7.2% forecast by experts at the end Q1 calendar.
SPX recently created a Death Cross
Senyek’s forecast only assumes that the economy will experience a moderate recession.
The ramifications of a major one on the economy could even be more severe.
The S&P 500 is likely to lose its gains in the short term as the “death crosses” have recently been spotted on the daily chart.
Death crosses occur when the 50-day MA of an asset falls below the 200-day MA. They often indicate a bearish trend ahead.
Wolfe Research is not the only Wall Street firm that has a dovish view of SPX.
Oppenheimer for example continues to expect the benchmark index will rise to 5,950, which would indicate a potential gain of another 10% from the current level.
The Invezz published this post: Risk Alert! A’mild’ recession could cause the S&P to crash down to 3,700.
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