Bernstein Sees Long Slog to S&P 500 Record as Slowdown Worsens

(Bloomberg) -- As this year’s rebound in U.S. equities renews optimism on Wall Street, Sanford C Bernstein & Co. is throwing in a dose of caution.

The S&P 500’s return to last year’s highs may take longer than many market forecasters expect, according to strategist Noah Weisberger. While the rally has lifted the index to within 5 percent of a record of 2,930.75 reached in September, the cyclical-led rebound has “mostly exhausted itself” and further gains will be hard to come by given a worsening slowdown in the global economy, he said. The firm’s model points to August as the time for the market to make a full recovery.

“While the slowing story is not new, the recent data show signs of increasing deceleration,” Weisberger wrote in a note dated March 4. “With slowing well entrenched, the cyclical leadership that has dominated year to date may be hard to sustain on the long slog back to old highs.”

That’s a less bullish assessment than others that have emerged lately. Last week, UBS Group AG strategist Keith Parker predicted that a more dovish Federal Reserve and a possible U.S.-China trade deal will extend an economic recovery, lifting stocks to new highs by the end of June. JPMorgan’s Marko Kolanovic on Feb. 14 said the S&P 500’s rally could last through May. Evercore ISI’s head of technical analysis Rich Ross this week said the market is in a strong position to break out and make a run toward 2,900.

Bernstein’s macro indicator, tracking data from consumer confidence to retail sales to manufacturing, is pointing to a growth rate of 2.2 percent, down from 3.6 percent two years ago. Moreover, the model shows a 65 percent chance that the U.S. economy will re-accelerate instead of contracting, compared with 80 percent in January.

The S&P 500 has hit a wall near the 2,800 level lately after rising in all but one weeks this year. Boosted by industrial and technology shares, the index added 11 percent in January and February for the best start of a year since 1991.

Investors should differentiate among companies as the gap in stock returns stood at the highest level in three years, Weisberger said.

To contact the reporter on this story: Gregory Calderone in New York at gcalderone7@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Lu Wang, Richard Richtmyer

©2019 Bloomberg L.P.