Some on Wall Street think stocks can hold their ground over the next year. But even those making such calls warn of serious risks.
The latest: Citigroup told clients this week that it believes the S&P 500 can hit 3,160 by this time in 2021. That would be a slight increase over current levels; the S&P 500 finished Tuesday at 3,145.
The bank noted “incessant” support from the Federal Reserve, which it said would continue to prop up riskier assets.
“Many risks are still out there, but the central bank will come in to mitigate the downside,” said Tobias Levkovich, Citi’s chief US equity strategist. He pointed to a quote often attributed to John Maynard Keynes: “When the facts change, I change my mind.”
At the same time, Citi cautioned that the next 12 months could be volatile, and that stocks will likely finish 2020 below current levels.
“There are various risks to share prices that should not be ignored,” the bank said.
On the list: Another wave of Covid-19 cases that triggers new shutdowns or a slower economic recovery would be “challenging,” Citi said. It’s also monitoring trade tensions and weak year-over-year comparisons (as opposed to quarter-over-quarter growth) that could spook traders.
The US election is coming into focus, too. Fund managers are racing to assess the costs and benefits of a potential Joe Biden presidency, weighing more predictable trade policy against likely higher taxes and regulation. For now, “the current zeitgeist does not seem to be all that worried about a possible Biden presidency,” Citi said.
The BlackRock Investment Institute also changed its position this week, downgrading US stocks to “neutral.” The asset manager’s strategists cited a surge in coronavirus cases across the Sun Belt and the potential for lower stimulus support from Congress, which they said makes it less likely US stocks can keep beating other markets.
“We now see a risk of more muted performance in line with global equities on a tactical horizon,” BlackRock said.
But the asset manager is not actively encouraging clients to sell due to the makeup of the US market. The United States benefits from “a high concentration of quality companies,” particularly in the tech and communications sectors, which are poised to benefit in a post-pandemic world, BlackRock said.
Investor insight: Amazon shares hit an all-time high earlier this week, and the Technology Select Sector SPDR ETF, which tracks the sector, is up more than 15% this year. For the S&P 500 to hold onto its gains, Silicon Valley stocks need to stay in favor.
