S&P 500 expected to trade at 2,580-3,250 in 2019
As the stock market prepares to usher out 2018 on a gloomy note, the prevailing mood among Wall Street analysts appears to be cautious optimism, with strategists predicting stocks will bounce in 2019—although the path higher might seem more shrouded in uncertainty than ever.
On Friday, the Dow Jones Industrial Averages DJIA, -1.81% fell 414.23 points, or 1.8%, to 22,445.37, while the S&P 500 index SPX, -2.06% fell 50.84 points, or 2.1%, to 2,416.58. The Nasdaq Composite Index COMP, -2.99% COMP, -2.99% traded down 195.41 points, or 3% to 6,332.99, officially entering bear-market territory.
Even with the strong U.S. economy as a positive backdrop, worries that the Federal Reserve’s efforts to normalize interest rates and wind down its balance sheet could continue to weigh on stocks.
The consensus, for now at least, points to two more increases next year, rather than three, after a widely expected rate rise by the Fed on Wednesday. An acrimonious trade war between the U.S. and China could also drag on stocks unless Washington and Beijing reach a quick resolution.
The stock market’s dismal performance in December, in fact, has already prompted at least one prominent strategist—Jonathan Golub, chief U.S. equity strategist, Credit Suisse Securities—to slash his 2019 S&P 500 target to 2,925 from 3,350.
“We are keeping our EPS estimates for 2019 and 2020 unchanged at $174 and $185, implying 6.7% and 6.3% EPS growth,” he said in a report. “The expected trajectory for EPS and the economy remain virtually unchanged during the recent market disruption. Our lower price target reflects recent volatility, rather than a change in fundamental backdrop.”
The Fed and China aside, there are other potentially destabilizing events looming that could tank the market, including Washington mayhem and political developments abroad.
S&P 500 forecasts for 2019
Here’s a snapshot of some Wall Street analysts’ 2019 preliminary outlooks:
Savita Subramanian, equity and quant strategist at Bank of America Merrill Lynch
“Two themes should drive equities in 2019: 1) more Fed tightening, where we prefer cash-generative investments over cash-users and 2) Higher volatility (likely through 2021), where we expect high quality stocks to outperform.
We expect the market may peak around 3,000, where still-supportive fundamentals, tepid equity sentiment and reasonable valuations keep us near-term positive. Alleviation of trade tensions also would present upside risk.”
David Kostin, chief U.S. equity strategist at Goldman Sachs
“A higher U.S. equity market, a lower recommended allocation to stocks, and a shift to higher quality companies summarizes our forecast for 2019. 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.”
Dubravko Lakos-Bujas, head of U.S. equity strategy, J.P. Morgan
“Fundamentals should remain healthy, as far as earnings, investment spending, corporate balance sheets and leverage are concerned. Even though earnings are expected to decelerate relative to 2018, they should remain positive and continue to grow.
“Over the next 12 months, we could see more than $1.5 trillion worth of demand for U.S. equities through buybacks (about $800 billion), partial reinvestment of dividend income (about $250 billion), as well as discretionary hedge fund and systematic flows (about $500 billion would take equity positioning to about 50%-tile) as volatility normalizes.”
Binky Chadha, chief strategist, Deutsche Bank
“It will take a while for the market to regain its prior peak: once volatility gets elevated, [the] market recovers only slowly (6-7 months); concerns about peak earnings are unlikely to dissipate until there are clear signs growth is steadying, which we don’t expect until second quarter earnings.”
Karyn Cavanaugh, senior market strategist, Voya Investment Management
“In 2019 we expect, and prudent investors should prepare for, ‘the storm before the calm’ — tighter monetary conditions, uncertainty that includes a ‘disorderly Brexit’ and increasing tensions between China and the United States on multiple fronts. We expect a storm though, nothing more.”
Mike Wilson, equity strategist, Morgan Stanley
“While things might look similar at the index level next year, the drivers should be much different than 2018’s robust earnings growth offset by much lower valuations. Instead, 2019 is likely to be characterized by disappointing growth and a much narrower range of valuation.
Holiday trading next week
Looking ahead, U.S. stock and bond markets will see an abbreviated session on Monday, with U.S. stock markets ending at 1 p.m. Eastern Time, while bond markets are set for a 2 p.m. close. Both stock markets on Wednesday will be closed for Christmas on Tuesday.
What data are ahead?
Monday
Chicago Fed National active index for November scheduled for 8:30 a.m.
Wednesday
Case-Shiller home prices for October due at 9 a.m.
Thursday
- Weekly jobless claims for the week ended Dec. 22 at 8:30 a.m.
- Consumer confidence index for December slated for 10 a.m.
- A reading of new home sales for November set for the same time
Friday
- Advance trade in goods for November due at 8:30 a.m.
- Chicago PMI for December scheduled for 9:45 a.m.
- A report on pending home sales for November set for 10 a.m.