US stocks will end this year around current levels as the coronavirus pandemic cripples the economy and eats into earnings, according to strategists polled by Reuters.
The market has been on a tear in recent weeks, and stocks are up sharply from the March low of their coronavirus-fueled tumble, but the benchmark S&P 500 .SPX stock index is still down since the start of the year.
The S&P 500 .SPX will end 2020 at 2,950, according to the median forecast of nearly 50 market strategists and fund managers polled by Reuters in the past two weeks. That would represent a 1.4% decline from Tuesday's close of 2,991.77 and a 8.7% fall from the end of 2019.
Many strategists believe a return to the March lows is unlikely because of the substantial stimulus from the US government and Federal Reserve, but they said there were still plenty of risks to derail the market.
"You just don't know what the post (pandemic) environment is going to look like, so that creates uncertainty and that makes you apprehensive to stick your neck out. Earnings are a huge gray area," said Daniel Morgan, vice president and senior portfolio manager at Synovus Trust Company in Atlanta. Morgan sees the S&P 500 ending this year at 2,960.
Several participants expect the second quarter to be the low point for corporate earnings this year.
Forecasts from IBES data from Refinitiv suggest the same. After falling 12.6% in the first quarter from a year ago, earnings for S&P 500 companies are expected to sink 42.7% in the second quarter, to fall 24.9% in the third and 13.1% in the fourth. For 2021, earnings are expected to jump 30.9%.
"Q2 earnings are likely to be the worst, although third quarter earnings may not be much better. Some of this will depend on the effectiveness and adequacy of fiscal stimulus going forward," said Kristina Hooper, chief global market strategist at Invesco in New York. She forecasts the S&P 500 will end 2020 at 3,100.
The market's outlook will also depend on the progress in producing a vaccine against the new coronavirus.
"If they have a vaccine and are able to produce it in sufficient quantities for mass vaccinations... That would probably be a game changer, and we'd see markets surge higher rather than grind higher," said John Praveen, portfolio manager for QMA, the quantitative equity and global multi-asset solutions business of PGIM.
Scores of US businesses have closed and workers have lost jobs and income following shelter-in-place orders since March to curb the spread of the disease.
Technology, the S&P 500's best-performing sector so far this year, was a favourite among strategists, while sectors heavily tied to the economic cycle, including energy and materials, were out of favour.
Technology "is a group that continues to deliver growth. It's not as strong as before, but when you have other sectors like oil or materials, they're struggling to find any sort of growth," Synovus' Morgan said.
The poll showed the Dow Jones Industrial average .DJI finishing 2020 at 25,700, which would represent a fall of about 10% from the end of 2019. But that forecast is above 24,995.11, where the Dow closed on Tuesday.