S&P 500, the U.S. stock market benchmark index, has been undergoing a correction phase recently, accompanied by several stock downgrades. According to Wells Fargo (NYSE:WFC), the stock market is expected to face an additional 2% downside risk based on the current technical levels and market conditions.
The S&P 500 is hovering around its 50-day moving average. Still, the pace of the recent sell-off suggests that a test of its 100-day moving average is likely, which could result in approximately another 2% near-term downside. Despite this, Wells Fargo analysts have maintained their price target for the S&P 500 at 5535, representing a slight 2% upside from the present levels.
They caution investors that this projected increase is not substantial enough to justify new investments. The upcoming Federal Reserve meeting could act as a positive catalyst for the market.
“We retain our view that the Fed cuts once this year in December and are less concerned about risks of a sharper slowdown in the economy. That said, a September cut has moved closer to our baseline,” Bank of America (NYSE:BAC) economists said in a note.
Wells Fargo suggests that if the S&P 500 moves even lower before the Federal Open Market Committee (FOMC) decision on July 31, it could offer an opportunity for some near-term gains.
Wall Street analysts adjust ratings on individual stocks as the market moves lower.
Here are the three big stock downgrades that have recently hit the headlines.
Lululemon Athletica (LULU)
Lululemon Athletica (NASDAQ:LULU) specializes in high-quality athletic apparel and accessories. Known for its strong brand loyalty and innovative products, it attracts investors seeking growth in the booming athleisure market.
Citi (NYSE:C) downgraded Lululemon stock from Buy to Neutral and significantly reduced its price target from $415 to $300. The revision follows observations of a slowdown in the active apparel sector, impacting the company’s performance.
The downgrade is based on recent credit card data indicating a slower second quarter than the first, which already showed a notable decline from fiscal year 2023. The analyst cited several concerns, including Lululemon’s execution issues, such as a lackluster product assortment and limited color and sizing options.
These issues may leave the retailer more vulnerable to increased competition and promotional pressures in the second half of 2024 and into the fiscal year 2025. The firm brokerage pointed out that the weakening trends and a tougher macroeconomic environment make a resurgence in U.S. market trends unlikely for Lululemon in the latter half of the year.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) is a leader in electric vehicle production and renewable energy solutions. Investors are drawn to its cutting-edge technology, visionary leadership and potential for long-term growth in the sustainable energy sector.
However, multiple stock downgrades in recent days after a softer-than-expected earnings report hit the stock. Cantor Fitzgerald, New Street Research and Phillip Capital are some shops that moved Tesla stock lower on their rating scale.
New Street Research, for instance, cut its rating on Tesla, moving the electric vehicle manufacturer’s stock from a “Buy” to a “Neutral” rating. The firm set a price target for Tesla shares at $225.00.
The current New Street Research assessment suggests that while Tesla’s long-term outlook remains positive, with expectations for auto margins to recover and energy contributing to growth, there are limited near-term catalysts to drive the stock price higher.
Moreover, the tech-focused brokerage firm notes that demand challenges potentially hinder price stabilization and volume growth. This is not expected to pick up until the latter half of the following year.
General Motors (GM)
General Motors (NYSE:GM) is a global automaker known for its extensive vehicle range. Investors are interested in GM’s strategic pivot to electric vehicles and autonomous driving technology.
The company delivered impressive second-quarter results for 2024, highlighting substantial financial growth and improved operational efficiency. The automaker recorded a revenue of $47.9 billion, exceeding the anticipated targets for the quarter.
Morgan Stanley (NYSE:MS) adjusted its stance on General Motors, issuing one of the notable stock downgrades from Overweight to Equal-Weight and slightly raising the price target to $47 from $46. The revision follows a noteworthy jump in General Motors’ share price, which has risen approximately 90% since November, marking the company as one of the most robust performers in the global auto manufacturing sector year-to-date.
According to the investment firm, General Motors has shown commendable improvements in capital discipline, which the market has recognized. Morgan Stanley now sees a balanced risk-reward scenario for General Motors, with a bear case target adjusted upwards to $28 from $26 and a bull case target increased to $62 from $60.
The bank’s decision to downgrade reflects a mix of factors that could pose challenges to General Motors, including anticipated industry headwinds such as price and mix normalization, potential increases in inventory and incentives, risks associated with the electric vehicle strategy and a projected decline in profits from the China market.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
