Credit Suisse Hasn’t Been This Cautious About Equities Since 2008


Credit Suisse Hasn’t Been This Cautious About Equities Since 2008

Credit Suisse has already downgraded its 2016 forecast for the S&P 500 index. The move comes just a few weeks after the bank unveiled its initial outlook for the index next year.

The 2016 global equity strategic outlook released by analysts of Credit Suisse said, “We reduce our weighting in equities to a small overweight, our most bearish strategic stance on the asset class in seven years."

The Credit Suisse analysts are largely led by their managing director Andrew Garthwaite. The move is somewhat surprising, as Garthwaite has traditionally been bullish on stocks. In 2013, Garthwaite successfully predicted that the S&P 500 would increase by 15%.

Last month, Credit Suisse affirmed its prediction that the S&P 500 index would reach 2,200 by the middle of next year. Since then, analysts have lowered their expectations, as they now expect the index to trade at about 2,150 by mid-2016. This would represent a 2% increase over current levels.

There are two major reasons that the analysts have made such a change in their prediction. For one, the economic slowdown in China is having an overall negative effect on the global economy. The other factor is from interest rate increases that are set to occur from the Federal Reserve.  Additionally, many economic sectors have been threatened by increasing regulations and more powerful emerging markets.

The Credit Suisse analysts stated, “We struggle to recall another time when so many sectors have faced threats from disruption, regulation, or emerging markets. Moreover, we believe that the competitive threat posed by Chinese corporates continues to be under-estimated as China continues to over-invest, driving down the gap between the return on equity and the cost of debt, as well as moving up the value added curve."

Still, while equities of the United States might perform poorly, it paints a positive picture for the rest of the world. As United States equity returns suffer, foreign equity returns typically fare better. Therefore, there might be some good money to be made in foreign investments in 2016.

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