It won’t surprise you that I’m bullish on stocks this year but what do other experts think? My views are driven by the fact that Donald Trump can’t have a recession and Wall Street crash before the end of 2020, which will bring the next US election. He has to cut a trade deal with China and the Fed minutes released overnight confirm that Jerome Powell and his Fed will be “patient” with interest rate rises in 2019.
It’s why the S&P500 in the USA has rebounded 9.9% since December 24. And it’s why our market has comeback 6.3% since December 21. Remember, we did not fall as much as the Yanks and that’s why our buyback of stocks is less impressive. Also, we have local headwinds, which I talked about on Monday, including the Royal Commission recommendations and how they might affect bank stocks and the upcoming election, with Bill Shorten a raging hot favourite to win with a bagful of anti-investment policies.
Sven Henrich, the respected technical analyst from marketwatch.com, is in the tentatively optimistic camp but points out that if a Trump trade deal fails to substantially excite Wall Street, then effectively the current rally is a sucker’s rally.
In summary, this was his 2019 outlook assessment: “Technical considerations suggest a coming reconnect with key moving averages in the weeks and months ahead as well as an at least temporary calming in the VIX,” he suggested. “However, a retest of the December low is a distinct possibility at some stage. A sustained break below the weekly 200 MA would set markets on the historic path of previous market tops. To the extent that a resolution in trade wars can bring about a resurgence in optimism and delay a global recession, markets may find a way to break above the key moving averages, setting up for a positive 2019.”
This assessment is only one day old but it would not have been influenced by the overnight revelation from the Fed minutes that reinforced Jerome Powell’s inferences last week that the US central bank would show patience with interest rate rises. However, Sven shows in a very technical piece how critical the Trump trade deal will be to what stocks do in 2019 .
Barclay’s equities team remains positive on stocks but has cut back on their enthusiasm. Their target for the S&P 500 index was 3000 but is now 2750 and this compares to a current level of 2584. That means there is a potential upside of 6.2% so if we add in dividends, which are smaller in the US, we are still talking close to a 9% return.
“Our base case remains that equities returns will be positive for 2019, although we now see a more limited upside. Retail sentiment has turned significantly bearish. Outlook for non-US economic growth is not as constructive,” Barclays’ Maneesh Deshpande said in a note to clients on Tuesday. (CNBC)
Since December 2018, at least five Wall Street firms have slashed their 2019 forecasts for stocks, including Canaccord Genuity, Credit Suisse, Citi and BMO Capital Markets.
But that should not be a big surprise, as US and global economic growth for next year has been pared back over the last quarter of 2018 but we are still seeing experts backing upside for stocks for the year ahead.
The only real difference is the degree of their positivity.
Morgan Stanley is with Barclays, seeing the S&P500 at 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,” Michael Wilson, Morgan Stanley’s chief equity strategist, wrote in a recent note before Christmas. “Valuation should be the key factor in stock selection.”
All that said, “Morgan Stanley’s base case price target for the S&P500 is 2750 for 2019, with a bull and bear case of 3000 and 2400, respectively. The firm anticipates the S&P500 will trade within a range of 2650 to 2800 by the end of 2018.” (finance.yahoo.com)
But it’s not all cautious positivity for 2019. Sean Darby of Jefferies Financial Group has a 2900 target for the index, while Oppenheimer is at 2960. Goldman Sachs is at 3000 but their advice is worth considering.
“A higher U.S. equity market, a lower recommended allocation to stocks and a shift to higher quality companies summarizes our forecast for 2019,” said David Kostin, who is chief equity strategist at Goldman Sachs. 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.
My colleague Paul Rickard has the same view as Kostin for local stocks this year — quality, income-payers are his preferred bias.
I like BMO’s call for the index at 3150, Deutsche Bank at 3250 and Credit Suisse’s Jonathan Golub, who’s shooting for 3350!
“Despite these headline risks, we believe that solid economic/EPS growth and benign recessionary risks will be sufficient to propel the market higher,” Golub said. (finance.yahoo.com)
Doing the maths, Golub is talking about a 29% gain in US stocks! Putting his way-out call along with the more measured views of other expert analysts together, it’s pretty reasonable for me to argue that if the current bounce-back is a suckers’ rally, then there are a lot of suckers masquerading as experts out there.
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