RBC cuts S&P 500 forecast, tells clients to hide out in these stocks

Published Thu, Mar 12 20203:01 PM EDTUpdated Thu, Mar 12 20204:01 PM EDT

(This story is for CNBC Pro subscribers only.) This year is a "lost year" for U.S. stocks thanks to the coronavirus pandemic, according to RBC Capital Markets. The Wall Street firm just slashed its S & P 500 year-end price target to 3,279 from 3,460, representing a 1.5% gain on the index in 2020. "Embedded in our new target is the idea that the brunt of the pain that the US equity market will experience due to the coronavirus will occur early in the year, with the bulk of the economic impact coming mid year, and a recovery trade taking hold once the news flow around the coronavirus improves and/or the valuation appeal of stocks becomes more clear," RBC Capital Markets head of U.S. equity strategy Lori Calvasina said in a note to clients on Thursday. Stocks have experienced a dismal rout in recent weeks as a spike in coronavirus cases in the U.S. and an oil price war has spurred investor fear about a halt to economic growth. The three major averages are in a bear market, meaning they are down more than 20% from their recent highs. The Dow Jones Industrial Average dropped more than 10% on Thursday and the S & P 500 was down about 9.5%, despite the Federal Reserve's announcement of more than $1 trillion in funding actions. The good news is that RBC's new price target implies a 30% rally from current levels and the firm suggested looking to the health care sector for yield. Calvasina upgraded the health care sector to overweight from market weight, given the group of stocks "continues to look deeply undervalued relative to the S & P 500." "Relative performance for the sector has improved, but we see plenty of runway for that to continue," said Calvasina. RBC also likes the earnings picture for the sector and expects it to thrive in this low interest rate environment. "Policy risk has been dramatically lowered in recent weeks as Joe Biden re-emerged as the front runner in the Democratic primary, pushing aside Sanders who made Medicare For All his signature campaign issue," said Calvasina. RBC is also overweight utilities and industrials. RBC also lowered its full-year earnings estimate for the S & P 500 to $165 per share from $174 per share. "We are modeling flat EPS growth for 2020 vs. 2019, the 2nd year in a row of little to no EPS growth," Calvasina added. —with reporting from CNBC's Michael Bloom.

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(This story is for CNBC Pro subscribers only.)

This year is a "lost year" for U.S. stocks thanks to the coronavirus pandemic, according to RBC Capital Markets.