Credit Suisse Sees 2150 For The S&P 500

Credit Suisse’s Andrew Garthwaite maintained a Neutral rating on equities, while expecting the S&P 500 to touch 2150 by year-end of 2016 and for the Euro Stoxx 50 to reach 3,350.

There Are Positives

Garthwaite pointed out that there have been improvements in several areas, such as the China housing and infrastructure segments, although the lead economic indicators “look like they are rolling over” and policy indicators show tightening.

On the other hand, the analyst stated that “almost all risk trades have been correlated to oil,” and if oil rose above $50pb, Saudi Arabia would be unable to meet its “apparent” economic and political objectives, including “including preventing the US becoming self-sufficient in energy.”

Noting that the Fed had become “more dovish” with the market rally, Garthwaite said that this was now reversing and that bond yields “have never decoupled to this extent from ISM new orders, cyclicals or commodities.”

In addition, earnings revisions in the U.S. have turned positive for the first time since June 2014, although this has been driven largely by the dollar and commodities. Therefore, this could be a misleading signal.

Somethings Didn’t Improve

Garthwaite mentioned that the Global PMI has not improved, while the global nominal GDP growth is the weakest since 2008-2009.

Also, “US labour is getting some modest pricing power and hence the gap between nominal GDP and wage growth has fallen to its lowest in this cycle,” the Credit Suisse report said.