Tags: Adams | stocks | Fed | 10%

Wells Fargo's Adams: Stocks Might Tumble Another 10 Percent

By Dan Weil   |   Friday, 01 Aug 2014 10:20 AM

The S&P 500 lost 2 percent Thursday, and that may just mark the beginning of the decline, says Gina Martin Adams, senior equity strategist for Wells Fargo.

She predicted at that start of the year that the S&P 500 would end 2014 at 1,850, little changed from the end of 2013.

"Our price target for the end of the year implies that we're probably about 5 percent down [4.2 percent down from Thursday's close] at the very least, at some point in the second half of the year," Adams tells CNBC.

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"You have to prepare yourself for up to 10 [percent]. Ten is very normal in the grand scheme of markets, and would actually be fairly healthy, washing out some of that excess optimism we've developed and some of the complacency we've developed."

A 10 percent slide from Thursday's close of 1,930.67 would put the S&P 500 at 1,738.

A pullback is normal given the Federal Reserve's decision to gradually withdraw its stimulus, Adams explains.

"When you look at history, it is very typical for the market to start to show some volatility, start to show some weakness in areas when the Fed is shifting gears. . . . We're starting to get a little nervous for what it's going to be like to fly on our own without the support of the Fed behind us, and we're set up for a period of volatility here."

In addition, a decline would present opportunities to get in the market, she notes.

"I'd say in the longer term, as long as the economic data continues to improve, as long as earnings data continues to improve, this is probably a buying opportunity. But you've got to pick your spots carefully amid increasing volatility," Adams explains.

"I think you want to focus here really on sector strategy. Finding the winners in the index of the next three to six, maybe even 12 months as we experience this period of volatility amidst the Fed shift is going to be really important."

Financial commentators offered a host of explanations for Thursday's stock decline, citing everything from Argentina's debt default to some weak corporate earnings reports.

"There are so many things that are coming to a head simultaneously," Joe Spinelli, head of single stock trading at Deutsche Bank, tells The Wall Street Journal. "Clients are wanting to get into a position to ride out any storm that might pop up."

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