Levkovich Issues Mea Culpa While Sticking to Dire S&P 500 Call


Citigroup Inc.’s Tobias Levkovich is sticking with one of Wall Street’s most bearish equity calls even after the S&P 500 has already blown well past his forecasts for this year and next.

While acknowledging that he’s made “significant” mistakes, the bank’s chief U.S. equity strategist is holding on to his prediction that the benchmark index will end this year at 4,000 before reaching 4,350 by June 2022. Both levels sit below its last close of 4,522.68. 

Underpinning Levkovich’s cautious view are stretched valuations and a planned tax increase that will hurt corporate profits. At 21 time forecast earnings, the S&P 500 is trading near the highest multiple since the dot-com era. 

Levkovich Issues Mea Culpa While Sticking to Dire S&P 500 Call

“Caution that proves to be wrong can cost one a career,” Levkovich wrote in a client note. “Nevertheless, we feel compelled to stand by our analytical process.”

Stocks just finished August with seven straight monthly gains, bolstered by robust earnings and unprecedented policy support. Up 20% this year, the S&P 500 has exceeded the most-optimistic year-end forecasts that Wall Street strategists made in January. Many are now scrambling to boost targets to catch up with the market.

Read: BMO’s Belski Raises His S&P 500 2021 Price Target by 7% to 4,800

Levkovich says he under-appreciated corporate America’s earnings power and misjudged investors’ willingness to chase risky assets amid Federal Reserve monetary stimulus. After boosting his 2021 target from 3,800 a few months ago, Levkovich is reluctant to capitulate again. With the central bank poised to rein in its asset purchases and growth set to slow, investors should brace for a decline, he said.

“We suspect that these items may not be drivers going forward and other factors including euphoric sentiment and stretched valuation become more impactful, offset to some degree by reinvigorated share repurchase programs,,” he said. “The stock market needs to consolidate the past 18 months’ worth of gains and portfolio managers require more visibility into 2022 profits.”

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