I. Risk Off Is Back
On September 15, we advised our readers to "Proceed With Caution." We postponed our year-end S&P 500 target of 8,400 to mid-2027. Our concern isn't earnings; it's stock valuations.
We remain bullish on the economy and earnings, expecting no recession through the end of the decade in 2029. Accordingly, we haven’t lowered our 2027 S&P 500 earnings forecast of $425 per share, which is only slightly above the industry analysts' current consensus of $423.08 (chart).
Instead, we lowered our year-end forward P/E forecast from 19.8 to 18.6; that’s what reduced our year-end S&P 500 target to 7,900. So far, our caution has been warranted. The S&P 500's forward P/E has been moving toward our targeted valuation multiple (chart).
Risk-off sentiment was on full display in the stock market today for most of the reasons we flagged in mid-September. The S&P 500 fell 1.1% to 7,718.94, while the Nasdaq Composite and Russell 2000 both dropped 1.9%. Selling pressure was particularly pronounced among technology stocks, with the SOXX tumbling 4.5% (chart). Interestingly, IGV fell 3.0%, while MAGS was down only 1.9%.
