The stock market could come within a hair of a correction in the next three months, Wells Fargo says.
Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute, sees problems for the S&P 500 as the record year comes to a close.
“Our midpoint of our target range for year-end 2018 is 2,500,” Wren said Tuesday on CNBC’s “Futures Now.” “We’re basically there right now.”
Wren is predicting a 4 to 8 percent dip from current levels before year’s end. The official definition of a correction is a 10 percent drop.
It appears his forecast may already be materializing. Just look at the Dow. The index is on its first four-day losing streak since June.
But it’s important to note that it has been a banner year for stocks. The Dow has soared nearly 13 percent while the S&P 500 is up 12 percent. The tech-heavy Nasdaq has also reaped big gains, surging nearly 19 percent this year.
“Valuations are meaningfully stretched in that the trailing 12 month P/E ration on the S&P 500 is 20 and change. And, that’s against about a 16½ 30-year median,” Wren said.
With stocks on the expensive side, an economy that’s “not really accelerating” and a Federal Reserve that’s firmly executing its rate-hike policy — Wren doesn’t see much upside left.
“The net net move between now and the end of 2018 is probably going to be pretty small,” he added.
There’s a silver lining in Wren’s 2017 downward spiral forecast. His year-end S&P 500 price target for 2018 is 2,450 to 2,550, which would suggest solid gains next year.
“That would give us say a 5 to 8 percent return [in 2018],” Wren said. “I think we’re going to have an opportunity to buy some stocks.”