In a climate of stocks with negative analyst sentiment, JPMorgan Chase has issued a stark outlook for the S&P 500 index, projecting a significant decline by the end of the year. According to the bank’s chief market strategist, the index is expected to fall to $4,200 — a more than 20% decrease from current levels.
This forecast comes as the S&P 500 surpassed $5,500 after a key U.S. inflation indicator suggested a potential easing of price pressures. JPMorgan’s prediction diverges from other Wall Street analysts who have raised their year-end projections due to the robust stock performance.
JPMorgan’s year-end target is the most conservative among those tracked by Bloomberg, with the average prediction at $5,317, indicating an approximate 3% decline from current levels.
The bank’s research team highlighted a “clear disconnect” between the U.S. equity valuations’ rapid increase and the weakening business cycle. They argue that the S&P 500’s 15% gain year-to-date is not sustainable, given diminishing growth forecasts.
The strategists suggest that optimistic market expectations may be upended in the upcoming quarters if growth slows, inflation persists and long-term interest rates do not decrease significantly.
This bearish outlook sets JPMorgan apart from peers at other major Wall Street banks. Analysts at Goldman Sachs, Citigroup and Bank of America have been adjusting their S&P 500 targets upward throughout the year. Moreover, Morgan Stanley’s Mike Wilson, who previously shared Kolanovic’s cautious views, has ceased issuing bearish forecasts.
Alphabet (GOOG, GOOGL)
Rosenblatt Securities recently adjusted its stance on Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), a notable example of stocks with negative analyst sentiment. Its rating change from “buy” to “neutral” comes with a set price target of $181.00 for the tech giant’s shares.
The brokerage firm’s decision to lower Alphabet’s rating is based on several factors indicating transitional risks. The analysts from Rosenblatt highlighted concerns about the effect of AI in search functions. The particular concern was how incorporating AI Overviews could temporarily reduce search advertising revenues.
Furthermore, Alphabet may be losing search market share to competitors like Microsoft’s (NASDAQ:MSFT) Bing. They also pointed to the shift in search advertising revenue toward retail media networks as a potential challenge for Alphabet.
Amazon’s (NASDAQ:AMZN) successful foray into the advertising space is expected to inspire other major retailers, like Walmart (NYSE:WMT), to follow. Another area of risk identified is the aggressive push by Amazon into video advertising.
Amazon’s plans to make advertisements a default feature on Prime Video and its assertive upfront sales campaign could disrupt the advertising sales landscape for YouTube, which is a significant part of Alphabet’s business. Lastly, analysts are concerned about the possibility of Alphabet facing a higher-than-anticipated capital expenditure cycle for AI.
Nike (NKE)
Nike (NYSE:NKE) stock attracted a series of analyst downgrades last week following a disappointing earnings report. One of the brokers, KGI Securities, downgraded its rating from “outperform” to “neutral,” setting a price target of $86.00.
The company’s forecast for fiscal year 2025 also predicts declining sales. This is attributed to diminishing demand in North America and Europe, as well as economic challenges in Greater China. Following the report, Nike stock experienced a sharp drop.
UBS also revised its stance on the athletic apparel giant, downgrading the stock from “buy” to “hold.” The firm has substantially reduced Nike’s price target from $125.00 to $78.00. The UBS analysts highlighted that there is no expectation for a quick recovery in Nike’s earnings. Instead, it is anticipated that Nike will undergo a multiyear reset to achieve sustainable growth.
Moreover, UBS has recalculated Nike’s estimated five-year EPS CAGR, starting from FY24, to be around 3%. This is a stark decrease from the nearly 13% projected earlier. This has led UBS to apply a lower price-to-earnings (P/E) ratio of 22 times, compared to the previous 27 times.
Other brokers, including Raymond James, also cut their respective Nike stock ratings.
ResMed (RMD)
In the context of stocks with negative analyst sentiment, Citi and Oppenheimer downgraded ResMed (NYSE:RMD) on GLP-1 treatment data last week. Citi downgraded ResMed from “buy” to “neutral” and reduced its price target to AUD$30.00 from AUD$36.00.
The adjustment came after new data emerged from the SURMOUNT study, suggesting that GLP-1 treatments could become a viable option for approximately 70% of obese patients with obstructive sleep apnea (OSA).
Citi’s analysis indicated that 40-50% of patients on tirzepatide achieved OSA remission. This could lead to a decrease in the demand for continuous positive airway pressure (CPAP) devices, a market in which ResMed is a key player.
While CPAP therapy is expected to be prescribed alongside GLP-1 treatments initially due to a dose escalation period of approximately 20 weeks, Citi anticipates a gradual rebasing of the CPAP device market. Moreover, they expect Philips to regain about 20% of the market share, with 10% potentially coming at the expense of ResMed.
Oppenheimer also downgraded ResMed, moving from “outperform” to “perform,” after the full SURMOUNT-OSA dataset was presented on June 21. The analysts noted that the outcomes of disease remission in the study could overshadow the mean AHI reductions, which were significant in their own right.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in GOOG.