U.S. stocks are poised for a “spring break” that will bring losses to investors as economic growth slows and corporate earnings weaken, according to Jonathan Golub at UBS AG.
The Standard & Poor’s 500 Index declined 7.1 percent on average from May to August in the last three years, according to data compiled by UBS. The benchmark gauge for American equities rallied 8.8 percent between January and April and climbed 8.2 percent during the final four months from 2010 to 2012, the data show.
“The market’s advance has been out of sync with weak earnings and economic trends,” Golub, chief U.S. equity strategist at UBS, wrote in a note dated yesterday. “Another spring break is likely to materialize and that now is a good time to begin dialing back on risk.”
The S&P 500 reached an all-time high of 1,593.37 on April 11 amid optimism that monetary stimulus from the Federal Reserve will spur economic growth. The index has since fallen 2.9 percent as analysts project the first quarterly profit decline since 2009 and economic data from employment to manufacturing and retail sales missed economists’ estimates.
The benchmark index retreated 1.8 percent today as companies from Bank of America Corp. to Textron Inc. reported disappointing results. First-quarter income from S&P 500 (SPX) companies probably fell 1.4 percent, according to analysts’ estimates compiled by Bloomberg.
The Bloomberg Economic Surprise Index, which measures the degree to which economic data exceeded or missed projections, has dropped 64 percent this year and earlier this week reached the lowest level since November.
Golub forecasts the S&P 500 will drop 9.5 percent from yesterday’s close to 1,425 by the end of this year. That is more pessimistic than the average estimate of 1,583 from 17 strategists, including Golub, surveyed by Bloomberg.
Investors should buy defensive stocks whose earnings are less tied to economic swings, he said in the note.
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