'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.

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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: FS – All – Economy – News
'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