$SPY, $WFC, $CS

Wells Fargo (NYSE:WFC) cut estimates for stocks next year on concern the Fed is making policy mistakes that will dampen US economic growth.

Chris Harvey, head of equity strategy at the bank, cut his year-end target for the S&P 500 Index to 2,665 from 3,079. While the new forecast represents a 10% gainer from current marks, he replaced Michael Purves at Weeden & Co. as the biggest equity Bear among strategists we follow.

The reduction came after US stocks dove following remarks from Fed Chairman Jerome Powell in which he downplayed the recent market volatility and said the central bank does not plan to alter efforts to reduce its balance sheet.

Policy makers increased borrowing costs for the fourth time this year, defying pressure from President Donald Trump, while dialing back projections for interest rates and economic growth in Y 2019.

“The message from the equity market seems to be that the Fed has committed a significant policy mistake and we wouldn’t disagree,” Mr. Harvey wrote in a note Friday. “The die has been cast and the odds of an accelerated slowdown have just increased.”

A less Dovish Fed means lower equity valuations and possibly a worsening economy.

Mr. Harvey cut the Y 2019 earnings estimate to $166/share from $173 and said investors are likely to demand a 2% premium in earnings yields relative to bond payouts as interest rates go up. The equity risk premium was at 1.4% prior.

Mr. Harvey joins a growing group of professional forecasters turning less optimistic as their predictions are hammered by this fall in stocks.

The other strategists we follow here have recently reduced their year-end targets for the S&P 500, including Barry Bannister at Stifel Nicolaus, Jonathan Golub at Credit Suisse and Sanford C Bernstein’s Noah Weisberger.

The S&P 500 fell 2.1% to 2416.58 Friday. Off 18% from its record high in September, the index is on pace for its worst Quarter since the Y 2008 global financial crisis.

Making an Keeping America Great!

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