'It ends next year:' What Wall Street's biggest firms are forecasting for the stock market in 2019, and where they say you should put your money

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  • Most equity strategists at major Wall Street firms expect 2019 to be another positive year for the stock market, but with major setbacks.
  • The feverish gains previously seen during this bull market run are not expected to last much longer, and assets that previously underperformed are falling back into favor.
  • Business Insider rounded up the forecasts and investing tips for navigating 2019 from strategists at Wall Street’s top firms.

„Own stocks, but it ends next year.“

That quote, from Savita Subramanian at Bank of America Merrill Lynch, neatly sums up the outlook for next year from most top equity strategists on Wall Street.

After a year that saw the return of volatility, an ever-escalating trade war between the world’s two largest economies, a massive dose of fiscal stimulus, and an extension of the near-record bull run, the consensus is gradually turning bearish. 

Given these factors, investors are being advised to carve out positions in assets that have not been stars of the nearly 10-year bull market, such as cash and value stocks. Moreover, these assets will come in handy if volatility remains high and economic growth slows down next year, as is widely expected.

We’ve rounded up these recommendations and other investing tips for navigating the stock market in 2019 from the chief equity strategists at top Wall Street firms. We’ve also included each person’s year-end S&P 500 and earnings-per-share targets.

SEE ALSO: Goldman Sachs unveils its best trade to profit from an unexpected move from the Fed in 2019

Goldman Sachs

S&P 500 price target: 3,000

EPS target: $173

Forecast: „A higher US equity market, a lower recommended allocation to stocks, and a shift to higher quality companies summarizes our forecast for 2019,“ David Kostin, the firm’s chief US equity strategist, said in a note.

„We forecast S&P 500 will generate a modest single-digit absolute return in 2019. The risk-adjusted return will be less than half the long-term average. Cash will represent a competitive asset class to stocks for the first time in many years.“

Investing recommendations: „Increase portfolio defensiveness. Overweight Info Tech, Communication Services, and Utilities. Underweight Cyclicals. Focus on ‚high quality‘ stocks using five metrics: strong balance sheets, stable sales growth, low EBIT deviation, high ROE, and low drawdown experience.“

Bank of America Merrill Lynch

S&P 500 price target: 2,900

EPS target: $170

Forecast: „Still-supportive fundamentals, still-tepid equity sentiment and more reasonable valuations keep us positive,“ Subramanian, the head of US equity and quant strategy, said.

„But in 2019, we see elevated likelihood of a peak in the S&P 500. Our rates team is calling for an inverted yield curve during the year, homebuilders peaked about one year ago and typically lead equities by about two years and our credit team is forecasting rising spreads in 2019.

Assuming the market peaks somewhere at or above 3000, our forecast is for modest downside in 2019.“

Investing recommendations: „We are overweight health care, technology, utilities, financials and industrials. Our underweights are consumer discretionary, communication services, and real estate.

For most of this cycle, stocks enjoyed a lack of compelling asset class alternatives (bonds had elevated price risk, cash yields hit rock bottom). But cash is now competitive and will likely grow more so. Cash yields today are higher than dividend yields for 60% of the S&P 500 today, and our Fed call puts short rates close to 3.5% by the end of 2019, well above the S&P 500’s 1.9% dividend yield.“

Morgan Stanley

S&P 500 price target: 2,750

EPS target: $171

Forecast: „After a roller coaster ride in 2018 driven by tighter financial conditions and peaking growth, we expect another range-bound year driven by disappointing earnings and a Fed that pauses,“ Michael Wilson, the chief US equity strategist, said.

„Bottom-up S&P 500 consensus EPS growth for 2019 is likely to come down as economic growth decelerates sharply and cost pressures rise. We think there is a greater than 50% chance we experience a modest earnings recession in 2019 defined as two quarters of negative y/y growth for S&P 500 EPS. This growth disappointment is likely to be offset somewhat by a Fed that pauses its rate hike campaign by June.“

Investing recommendations: „We upgrade consumer staples to overweight and REITs to equal-weight while downgrading industrials to equal-weight. We also maintain a modest preference for large over small caps.“

See the rest of the story at Business Insider
Source: Business insider

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