S&P Cuts \'500\' Target, Says Bear Market Looms

Published: Thursday, 1 Jul 2010 | 12:02 PM ET Text Size By: Jeff Cox
CNBC.com Staff Writer

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Standard & Poor\'s has cut the target price for its broad 500-stock index and is recommending that investors reduce their exposure to US stocks as a possible bear market develops.

In a note to clients, the firm has reduced its full-year target price for the S&P 500 [.SPX 1020.63 -6.74 (-0.66%) ] from 1270 to 1190, a cut of 6.2 percent though still a healthy 17 percent bounce from current levels.

S&P said investors should reduce their exposure to US equities from 45 percent to 40 percent and increase bond allocation to 30 percent from 25 percent. The company is owned by McGraw-Hill [MHP 27.77 -0.36 (-1.28%) ].

High volatility, caused by global growth concerns and sovereign debt worries, increase the range of investment outcomes, in our view, and merits a larger-than-average fixed income allocation, the note said.

A stock market rally likely won\'t happen until autumn, but a bear market could occur in the meantime, with little support for the S&P until it reaches 950, with a possible fall as far as 883, the firm said.

A bear market is a 20 percent drop from the recent high, which would take the S&P to about the 975 level. The market is currently in correction mode, which is a 10 percent drop.

Major chart support for the major indices is giving way, suggesting to us that this correction may morph into a bear market, the note said.

We think the market is likely to remain weak into the fall months, with a potential bottom in September or October, the firm said, but later added, We then see a strong rally during the last two to three months of the year.