Barclays is the biggest bear on Wall Street and says there's a chance of an 'L-shaped' recovery

Published Wed, Apr 8 20208:52 AM EDTUpdated Wed, Apr 8 20209:08 AM EDT

(This story is for CNBC Pro subscribers only.) Barclays cut its S & P 500 outlook to the lowest on Wall Street despite the recent swift rebound, warning the coronavirus pandemic will cause economic damage worse than the financial crisis. The bank on Wednesday cut its year-end target on the S & P 500 to 2,500 from 3,000, representing the most bearish forecast on Wall Street, according to the CNBC Market Strategist Survey . Barclays' new target would translate into a 6% decline from here and a 22% loss for the full-year 2020. "Equities have rallied significantly off their lows in late March as the growth rate of new infections continues to decline but estimates of economic damage are now worse than the 2008 GFC," Maneesh Deshpande, head of equity derivatives strategy at Barclays, said in a note Wednesday. The S & P 500 has rallied about 20% from its March 23 low as investors bet that global monetary and fiscal stimulus would cushion the economic blow and a slowdown in coronavirus cases also fueled optimism the outbreak is stabilizing. However, the speed of the rebound calls into question the sustainability of the comeback. The market seems to be pricing in a V-shaped recovery, where the big downturn is followed by a violent upswing, but Barclays warns the likelihood of an L-shaped recovery can't be ignored where coronavirus shutdowns are likely to weigh on the economy significantly beyond the second quarter. "We cannot discount an L-shaped scenario where second-order effects on economic entities with 'pre-existing' conditions spiral out of control leading to a much more substantial downside," Deshpande said. "Risks of a U- or even an L-shaped path are non-trivial." The strategist said the global shutdown and quarantine will likely take some time to be lifted even though signs are emerging that the pandemic could be abating. He sees a 10% probability for an L recovery and a 40% chance for a U recovery. The number of daily increases in coronavirus cases has fallen since Friday in the U.S. and globally, according to data from Johns Hopkins University. Barclays trimmed its 2020 S & P 500 earnings per share estimates to $133, representing a 19% year-over-year drop. The consensus year-end target for the S & P 500 comes to 2,896 as of Wednesday, representing a 10% loss for the year, according to the CNBC Market Strategist Survey that rounds up 16 top strategists' forecasts. — CNBC's Michael Bloom contributed reporting.

(This story is for CNBC Pro subscribers only.)

Barclays cut its S&P 500 outlook to the lowest on Wall Street despite the recent swift rebound, warning the coronavirus pandemic will cause economic damage worse than the financial crisis.