Stock market bull pulls back on ’18 forecast

One of Wall Street’s most bullish stock strategists is dialing back her upbeat 2018 outlook.

Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets in New York, now sees the stock market rising about 8% this year, down about a third from her initial projection for a gain of more than 12%. She now sees the Standard & Poor’s 500 stock index ending the year at 2,890, down from her prior call of 3,000, which had been the second-highest prediction on Wall Street.

In a recent market update, Calvasina told clients that RBC is “curbing our enthusiasm.” But that doesn’t mean she thinks stocks are in for a big fall over the next six to 12 months. “We are still bullish on stocks,” she says, “but a bit less so than we were to start the year.” Why the change in thinking? Rising interest rates, she says, could slow the market’s advance. She expects investors to pay less for stocks relative to corporate earnings as they have the past three times since 1990 when the central bank was increasing borrowing costs.

And while she’s still upbeat on corporations ability to boost earnings, she’s expecting a modest decline in profit margins due to “building wage pressures.” As a result, she has slightly trimmed her estimates for S&P 500 earnings this year.

The other big headwind is politics. The list of policy worries include trade war fears, potential regulation of tech companies and the midterm elections.

But even those obstacles are not likely to kill the bull. “The bull is limping but still moving forward,” she said.