Investors have moved from buying every pullback, a pattern that had not been interrupted once from 2011 to 2014, to a mentality of selling each market rally. On last look, the Dow and S&P were both down by more than 10% from the 2015 all-time highs. 24/7 Wall St. has used a consensus analyst target price methodology, combined with a more modern approach of index calculations, to forecast a peak value for Dow Jones Industrial Average (DJIA) each year. This worked rather well in 2010 to 2014, but the model did not hold up in 2015 at all after a key index change when Apple Inc. (NASDAQ: AAPL) was added to the Dow.

In the second week of 2016, 24/7 Wall St. took the inverse of a bullish and bearish approach and decided to focus on the most bearish analyst price target of each of the 30 Dow stocks. This averaging out of the lowest targets and then equally weighting the index (rather than using the price-weighting for each DJIA stock) would have generated an average downside of -13.48% for 2015 — down to 15,076 in 2016.

One warning made when we did our calculations, particularly for the upside of 19,700 at the end of 2015: Analysts are still just too damned optimistic! This is a phrase that investors likely will be encounter many times in 2016. To prove the point, several of the 30 DJIA stocks have seen their most bearish analyst target prices brought lower. Of the nine DJIA stocks where the lowest analyst price target from Thomson/First Call was changed, seven had slightly lower targets, versus two DJIA stocks in which the most bearish analyst target was raised marginally higher.

Again, we already said that analysts were too damned positive. Now that most bearish methodology would point to a downside of 14,961 on the DJIA in 2016.

Investors need to keep in mind that this downside target will sink lower if the market keeps drifting south. If you ask why, it’s because the analysts were too negative before and they will have had to adjust their bearishness even lower. That 19,700 DJIA case for 2016 would already be lower as well.

Other things should be considered here. This is trying to modernize the Dow calculation based on analyst targets, rather than using S&P 500 strategist target changes. The DJIA is an antiquated calculation. We also have removed the dividend calculations from this on the downside, which may leave a much better implied floor for total return investors in these names individually. Link to the bullish and bearish outlooks for Dow stocks has been provided as well.

Chevron Corp. (NYSE: CVX) saw its lowest price target from analysts go down to $80.00 from $81.00. Chevron’s consensus analyst price target has also drifted lower from the end of 2015 to $97.64 from $99.55. The new lowest analyst target would imply a drop of 11.07% in 2016. Despite the consensus analyst target coming down almost $2.00 from the end of 2015, investors have grown worried that the annualized dividend payment from Chevron is more than the expected earnings per share of 2015 and 2016, and 2015 was very front-end loaded.

Goldman Sachs Group Inc. (NYSE: GS) is actually the top DJIA stock based on the index being price-weighted, and its 13% drop to about $157.00 so far in 2016 has exacerbated the Dow’s drop. Its most bearish analyst target was lowered down to $150.00 from $156.00 at the end of 2015. Goldman’s consensus analyst target also drifted lower to $205.71 after the first two weeks of trading, versus $208.92 at the end of 2015. The new lowest analyst target would imply a drop of 16.77% in 2016, almost the mathematical inverse of the 17% expected gain in the original Goldman Sachs bullish and bearish case for 2016.

Intel Corp. (NASDAQ: INTC) actually saw its lowest analyst target of $24.00 raised to $25.00 at Goldman Sachs, but the firm did keep its Sell rating on Intel. The new lowest analyst target would imply a drop of 27.4% in 2016. The bullish and bearish case for Intel was muted in 2016 and was different from how analysts see Intel after earnings, mainly because of how badly its stock has traded so far (-13.6%) in 2016.

International Business Machines Corp. (NYSE: IBM) saw Jefferies lower its price target from $125.00, a tie with Credit Suisse prior to the call, drop to $110.00 with an Underperform rating. The new lowest analyst target would imply a drop of 20.0% in 2016. The snapshot earnings reaction was underwhelming.
Johnson & Johnson (NYSE: JNJ) saw its lowest analyst target price cut to $92.00 from $95.00, but its $108 consensus target was flat from the end of 2015. The new lowest analyst target would imply a drop of more than 10.4% in 2016, different from the bullish and bearish outlook for 2016.

JPMorgan Chase & Co. (NYSE: JPM) saw its price target cut to $63.00 from $65.00. This would have been down from $66.00 at the end of 2015, but the new lower low target from analysts was just above $57.00 on Friday. In short, a lower target here is actually above the new price, and it reflected a $0.44 dividend payment on January 4. The consensus target price was moved down to $72.33 from $72.96. The new lowest analyst target would imply a drop of 4.59% in 2016, but the JPMorgan bullish and bearish case was better.

Merck & Co. (NYSE: MRK) saw its lowest analyst target price drift down to $53.00 from $54.00. Merck’s consensus target price of $61.74 after two weeks of selling is down slightly from the $62.26 consensus target at the end of 2015, and this new lowest analyst target being cut by $1.00 would imply a gain of 0.34% in 2016. Merck’s bull and bear case looked better just two weeks ago.

Travelers Companies Inc. (NYSE: TRV) saw its price target actually tick up to $92.00 from $90.00 in its coverage universe. The latest consensus target price of $112.40 was slightly higher than the $111.19 consensus target seen at the end of 2016. The new lowest analyst target for Travelers would imply a drop of 18.48% in 2016. There was no Travelers bull-bear case run in 2016, but Merrill Lynch was cautious here just in December.

Walt Disney Co. (NYSE: DIS) saw its lowest analyst price target drop down to $89.00 from $90.00 in the first two weeks of 2016. This is a new low from a new firm because Barclays made that cut with a downgrade to Underweight from Equal Weight and from a prior $98.00 price target. Disney’s bullish and bearish outlook has had less charge and more hibernation since the end of 2015. Its consensus target had drifted lower to $115.74 from $118.24 at the end of 2015. The new lowest target from Disney’s analysts would imply a drop of 15.3% in 2016.

Again, if the stock market heads lower you can expect that the lowest price targets on many of the Dow stocks also will head lower. That’s just the way it works, just like how analysts keep chasing their price targets ever higher during bull markets or large rallies. One last issue that has to be addressed here is that there is often a discrepancy on Thomson/First Call estimates from source to source, and those can change without notice.

Our peak-DJIA calculation for 2015 was 19,142 and the bullish projection at the end of 2015 was a DJIA 19,700 peak value. We have said that, despite anything being possible, this just seemed far too rosy, even among the biggest market bulls. Again, analysts were just too damned positive. By the end of 2015, the Dow had posted a loss of 2.2% instead of a big gain. Even using the 19,142 DJIA peak price projection, the reality is that the DJIA peak was almost 800 Dow points under the top-tick target.

There are other issues to consider in 2016 for why investors have grown less trusting and bullish. Expecting double-digit gains for the Dow in 2016 has now become much harder as the Dow and S&P 500 were last seen more than 10% off their highs. Investors are now selling rallies rather than buying dips. Economic growth in the United States and in growth markets looked better at the start of 2015 than it did at the start of 2016.

The 8.25% DJIA drop in the first 10 trading sessions of 2016 was worse than the drop of 5.75% in the Dow in the first 10 trading sessions of 2008. And do we even seem like we are entering a global financial crisis yet? Oil and commodity weakness persists, as does a strong dollar. Another caution is that Federal Reserve presidents keep talking up the possibilities of raising interest rates gradually in 2016, after seven years of a zero interest rate policy. Stock values against earnings are somewhat high, and earnings estimates are coming lower across the board, making the expected price-to-earnings (P/E) ratios even higher than prior views.

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