Wall St 'needs to fall further to take account of recession'

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Thomas McManus, chief investment strategist at Bank of America and Al Goldman of broking firm AG Edwards said the Standard & Poor's 500 index - which is more widely followed by analysts than the Dow Jones Average - would need to fall from its current 1310.50 to 1250 for share prices to be in line with the prospects of a shrinking US economy.

Jason Trennert of Strategas Research Partners said the index needed to drop to 1260 to "fully discount" recession. He said: "We are not too far away from that now. The odds of a recession this year have gone up substantially, but I still believe there's a chance we are going to skate past one."

His target for the S&P 500 by the year-end is 1640. The index has fallen 16% from its high last year in the wake of the subprime crisis.

Goldman, the 73-year-old strategist at AG Edwards, is expecting at least 10 months of contracting economic growth in the US but also expects the index to recover to 1600 by the year-end. He said: "After recessions come recoveries. You've got to keep your wits about you."

Bank of America's McManus said there was a "high likelihood" the US recession had already started and investors should increase their exposure to equities. He forecasts the S&P 500 will rise to 1550 by the end of this year.

But David Bianco at UBS believes that S&P at 1350 is already fully pricing in recession. He told clients to start buying shares, pointing out that in the past five recessions share prices hit their low points before companies started reporting their biggest falls in earnings, not after.