Barclays is calling for a slowdown in consumer spending that should dent earnings, the economy and ultimately the stock market. The Wall Street firm lowered its year-end S & P 500 price target to 4,500 from 4,800 on Thursday. This implies a gain of less than 1% for the index through year end from its Wednesday closing level of 4,456.24. "We expect limited upside to U.S. equities," said Jonathan Millar, deputy chief U.S. economist at Barclays. "A potential decoupling between economic and earnings growth due to a slowdown in goods consumption is an unappreciated headwind." Slowing goods consumption paired with a hawkish Federal Reserve make a "dual threat for equities," he added. Stocks have struggled this year in the face of rampant inflation, rising bond yields and geopolitics tensions. Most notably, the Federal Reserve hiked interest rates for the first time in three years last week, and forecasted at least six more hikes in 2022. The S & P 500 is off by over 6% this year, while the Dow Jones Industrial Average and Nasdaq Composite have dropped more than 5% and more than 10%, respectively. Barclays' economists noted that earnings estimates for the year have floated higher despite a flattening of goods consumption. "This could occur even as GDP growth remains strong from a rebound in services spending, emboldening the Fed to fight inflation harder and further hindering earnings growth," said Millar. For this reason, Barclays also downgraded its earnings estimate for the S & P this year to $223 per share from $235 per share. "Higher oil prices should put further pressure on goods spending while higher inflation, supply chain pressures, and diminished pre-pandemic inventories should put pressure on margins. Valuations have rerated lower, but high inflation should put a cap on their expansion," Millar added. — with reporting from CNBC's Michael Bloom.
