Markets

Bank of America cuts market forecast, says coronavirus is 'meaningfully impacting' fundamentals

Key Points
  • Bank of America cut its market forecast saying "the coronavirus outbreak is now meaningfully impacting fundamentals."
  • The firm now sees the S&P 500 finishing the year at 3,100, compared to prior estimates of 3,300.
  • The bank's strategists forecast U.S. companies earning $169 per share, which is 5% below earlier estimates.

As the coronavirus outbreak continues to pressure stocks, Bank of America on Monday cut its market forecast for the year and said that earnings growth for U.S. companies will be 5% below earlier estimates.

"The coronavirus outbreak is now meaningfully impacting fundamentals," the firm's strategists led by Savita Subramanian wrote in a note to clients.

The firm now sees the S&P 500 ending the year at 3,100, which is about 5% above where the index currently trades. Bank of America's prior forecast was 3,300. 

The lower target reflects a number of factors, including a reduction in earnings per share for 2020. The firm now sees 2020 EPS at $169, which is 5% below its prior estimate of $177, due to "lost business activity and disruption."

Macro factors that could pressure profits include reduced oil prices as well as a strengthening dollar. Bank of America also sees global GDP at 2.8%, which the firm notes is the "first sub-3% rate since the financial crisis."

The major averages are coming off their worst week since the financial crisis as the number of coronavirus cases around the world rises. Many companies including Apple, Nike and United Airlines have already warned that they will not meet guidance thanks to supply chain disruptions caused by the outbreak.

However, the $169 in earnings per share that Bank of America forecasts still represents 4% year-over-year growth, which is above some firm's estimates, including Goldman Sachs, which believes there will be no earnings growth this year.

Bank of America noted that it does not see a bear market on the horizon. It added that 53% of its "Bear Market Signposts" are flashing red, compared with 63% in January, and also said that amid the volatility investors should "avoid panic selling."

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