The S&P may be trading above 1,700, but a Wells Fargo analyst says it’s not likely to stay there, as corporate earnings get squeezed—especially in the consumer-staples sector.
Wells Fargo (WFC) senior analyst Gina Martin Adams, who spoke with CNBC over the weekend, sees the major index at 1,440 by year end, or down nearly 16%. She also moved consumer staples to underweight.
Earnings revisions have been hurting the sector, which has been “leading the S&P on the downside,” Martin Adams said.
The reason? “Disposable income growth, at 2.4% year over year, is growing at its slowest pace in nearly 50 years, outside of the 2008-’09 recession,” she said.
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The bearish analyst and institutional equity strategist also points out that the consumer-staples sector is down about 2.5% in the past three months.
“The bear case for staples and the [S&P] index at large is the earnings environment,” she said; earnings growth is at a 5%-6% pace for the third quarter but could slow down in the fourth.
“We are still pretty cautious, because we think ultimately stocks follow earnings growth, though they’ve decoupled a bit recently,” Martin Adams said.