UBS tells clients: Stocks will gain half as much as previously forecast

UBS AG reduced its forecast for where the Standard & Poor’s 500 Index will end the year to 1,150, citing slower profit growth and an unwillingness among investors to pay higher valuations for earnings.

Jonathan Golub, the chief U.S. market strategist at UBS, cut his forecast from 1,350, according to a report sent to clients today. The average projection among 13 strategists surveyed by Bloomberg News is 1,259. He also reduced his forecast for total 2010 and 2011 earnings at S&P 500 companies to $84 and $91 a share, respectively, from $87 and $97.

The shift at UBS follows the 16 percent retreat in the S&P 500 since its 19-month high in April amid concern that spending cuts at indebted European nations will curb global economic growth. Golub, whose projection for the stock index requires a 12 percent rally to prove accurate, cited “modestly weaker earnings growth” and “lower multiples due to an increased focus on longer-term secular headwinds” in his report.

“The U.S. economic and earnings recovery remains intact, and the chances of a double-dip recession and a corporate earnings contraction are low,” New York-based Golub wrote. “However, incoming economic data have been showing signs of decelerating growth, producing a string of recent disappointments.”

The S&P 500 retreated 5 percent last week after the Conference Board slashed its estimate of Chinese growth and U.S. government reports on employment and manufacturing trailed the median economist estimates.

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