As 2018 comes to an end, we like to look back at projections for the S&P 500 index that top Wall St. strategist made for the year and what they are expecting for 2019. The S&P 500 ended the year down 6.24% after one of the worst fourth quarters in history. Uncertainty about trade, slower expected earnings growth, and lower oil prices are just a few of the things that fueled the selloff. Despite this historically bad quarter only one out of the 17 strategists below believe the S&P 500 will finish 2019 lower. The average predicted finish for the S&P 500 in 2019 is 2971 which is a 18.57% increase from the December 31st close. Take this with a grain of salt as all these strategists were an average of 13% off last year’s expectations and some have even revised their 2019 numbers lower after the recent selloff. Below you can see each of their predictions as well as a short explanation to back it up.
Credit Suisse, 2925
“Multiple expansion, rather than corporate earnings growth, will be the main driver of the gains”, Golub said. He foresees EPS growth decelerating to 7.7% in 2019 from about 23% in 2018, “largely the result of fading tax impacts.” Other risks include the threat of a yield curve inversion given the narrowing gap between government bond yields, as well as continued tightening from the Federal Reserve”.
Morgan Stanley, 2750
“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,” Wilson wrote. “Valuation should be key factor in stock selection.”
Bank of America, 2900
“We suspect that we see a peak in equities next year, but bearish positioning and weak sentiment in stocks present upside, especially if trade risks subside, keeping us constructive for now.”
Goldman Sachs, 3000
“A higher U.S. equity market, a lower recommended allocation to stocks and a shift to higher quality companies summarizes our forecast for 2019,” Kostin said. He characterized “high quality” stocks as those carrying strong balance sheets, stable sales growth, low EBIT deviation, high return on equity and low drawdown experience.
Citi Group, 2850
“The good news is that 2019 estimated consensus EPS growth has slipped from a very unlikely 12% back in September to 9% currently, probably on its way to 6%, at which point a ‘meet or beat’ environment can reemerge.”
“However, we believe the forecasts are too focused on the absolute numbers and lack longer-term perspective. Remember, the environment remains a very good recipe for stocks – high-single-digit earnings growth, STILL low interest rates, 2.5-3% GDP and increased dividend growth.”
Société General, 2400
Looking at US markets in 2019, Kaloyan expects another challenging year for global equities, with “downside potential to global equity indices for the next 12 months, with poor performance expected to be concentrated in 2H as investors discount the next US recession” which the French bank expects will hit in mid-2020
RBC Capital, 2900
Chief equity strategist Lori Calvasina wrote in her 2019 outlook on Thursday that the broad S&P 500 index should post more muted gains as gross domestic product growth recedes toward its normal rate, assuming no additional fiscal stimulus.
“The Fed’s balance sheet normalization implies an increasing competition for capital favoring Quality. Equally, widening credit spreads will mean higher equity volatility, underwriting companies with net cash and high FCF yield”.
“Strong 2018 economic/earnings growth was driven by fiscal stimulus, a rebound from 2016 mini-industrial recession and front loading of trade before tariffs kick in. As these one-off drivers fade, we expect growth to moderate but only to post credit-crises levels”.
JP Morgan, 3100
“We expect the equity pain trade to be on the upside, given diminishing tariff and Fed related risks, positive earnings growth, attractive valuations, continued shrinkage of equity supply via buybacks, and given very low investor positioning”.
Deutsche Bank, 3250
“It will take a while for the market to regain its prior peak” after rollercoaster equity trading in 2018, Chadha said. “Volatility shocks take a while for equities to recover from, and buybacks “
“We expect 2019 to be a bridge between a period of acceleration, owing in part to a rebound from a near-recession in 2015, to a period of retrenchment ahead,” Weisberger wrote in a note to clients. “The U.S. is entering a slowdown phase. The near-term future is less placid than the recent past, yet not as bad as feared.”
“increasingly negative sentiment” in the wake of the fourth-quarter 2018 equity drawback may be “setting the stage for upward surprises in 2019, with a reset in valuations and the potential for better-than-expected fundamentals and attractive risk/reward opportunity set for global equities,”