Credit Suisse Downgrades S&P 500 and GDP Targets for ’11 and ’12 (SPY)

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Credit Suisse is downgrading the benchmark targets for the stock market and for economic growth.  Before you panic too much, the Global Equity Strategy group is still maintaining an Overweight rating for stocks.  The target cuts are an average of about 2% and the basis is against a 1,185 S&P 500 Index level.

The firm has cut the target to 1,180 from 1,220 for 2011.  With a most recent close of 1,185, Credit Suisse is opining that today’s levels are where we’ll be at year-end.  For 2012, the S&P 500 target was cut to 1,260 from 1,300 and that implies expected equity gains of about 6.3%.  U.S. growth was also downgraded to 0.7% from 1% just two weeks ago.

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Where the problem arises, outside of low return expectations, is that the firm has joined the recession bias camp saying “The probability of a mild recession has risen… We think the probability of a mild recession has increased from 20% to 25%.”  Several issues were cited: European targets are now flat to -1% for GDP; global food prices are still high; political leadership is poor in the E.U.; higher risks in U.S. policy; a hawkish Japan; and a continued tightening action from China.

SPDR S&P 500 (NYSE: SPY) may be in for a flat year-end from today’s $119.00.  We have also looked at the curse of September with an outlook for this year.

In short: more caution, less conviction, no catalysts… In reality, this report is one that you could argue is half-empty or half-full.  The bias of the current market leans toward the ‘half-empty’ view.

JON C. OGG

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