Wall Street Strategists Predict the S&P 500 and Top Sectors for 2019

December 4, 2018 by Jon C. Ogg

Source: Thinkstock
Perhaps the best way to describe 2018 has been volatile, and the strength of the bull market in stocks, after nine years of solid gains, has been called into question more than a few times. With it being the first week of December, what matters the most now is what to expect in 2019. Some market forecasters have pointed to data from 20 to 40 years in which political gridlock is good for the stock market. This seems a harder pill to swallow for 2019, but that’s what makes a ball game for forecasters.

With a 90-day delay in the trade war and tariffs between the United States and China, the Dow Jones industrials, S&P 500 and most major equity indexes have recovered handily from their lows in November. The markets have not yet seen how 2018 is going to turn out, but many Wall Street brokerages have issued their preliminary targets for the S&P 500 for 2019.

24/7 Wall St. has collected the outlooks and targets from many of the major firms, with partial snapshots from the likes of Barclays, BMO, Citigroup, Credit Suisse, Goldman Sachs, JPMorgan, Merrill Lynch, Morgan Stanley, UBS and Wells Fargo. The snapshot values for the major indexes at the time of this reporting were roughly 2,775 for the S&P 500 index and 25,700 for the Dow Jones industrial average.

Investors need to keep in mind that these 2019 targets are still rather early and that they are likely to be altered into the last week of 2018 and in the first weeks of 2019. One further caveat is that most of these forecasts were made before the recent recovery in stocks and when sentiment was dismal. Many of these calls also were made prior to the G20 notice where President Trump gave China another 90 days of tariff delays to work out details to get to a real trade deal.

Here are Wall Street’s preliminary views, with a focus on the equity markets for 2019. When possible, information about the 2018 outlook updates and specific sector views have been included.

Barclays has set its S&P 500 target at 3,000 for 2019. Keep in mind that the firm’s 2018 year-end price target for the index was 2,900 earlier this year. The materials sector was raised to an Overweight rating, and the newly redefined communications services sector was given an Equal Weight rating. The firm’s view on financial services was lowered to Market Weight from Overweight, and the industrials sector was lowered to Underweight.

BMO Capital Markets still values the S&P 500 at 2,950 in 2018, and its target for 2019 is currently 3,150.

Citigroup has set a 2018 target for the index at 2,800, and it was given a 3,100 target for the end of 2019.

Credit Suisse has the most bullish S&P 500 outlooks among the larger firms, with 3,350 for the end of 2019. Its 2018 fair value was 3,000.

Goldman Sachs is calling for the S&P 500 to reach 3,000 with a 50% probability by the end of 2019 (versus a 2,850 fair value for 2018). The firm suggests that all investors should raise their cash levels now that cash is offering a competitive view to stocks for the first time in many years. Goldman Sachs also noted that investors should buy defensive stocks and sectors for 2019 as recession fears are expected to increase. It recently raised its view on utilities to Overweight, and it noted that the broader market could face serious headwinds if the full 25% tariff is set against all China imports. Goldman Sachs even suggests a 30% probability that the S&P 500 could head south in 2019 to a level of 2,500. Its larger upside target, with just a 20% probability, is 3,400 if trade issues are rectified and if economic growth continues higher than its base case.

JPMorgan’s S&P 500 outlook for 2019 has not yet been seen, but the prior fair value on the S&P 500 for 2018 was 3,000. The firm did recently slash its Brent Sea crude forecast to $73 per barrel for 2019, down from a prior target of $83.50 per barrel.

Merrill Lynch has become more cautious and its strategist, Savita Subramanian, thinks the stock market may have peaked in 2018. Its 2018 year-end fair value on the S&P 500 remains 3,000, but the firm now suggests a 2,900 target for 2019. The firm, similar to Goldman Sachs, sees cash as competitive and likely to grow now that cash outyields 60% of the S&P 500. The firm also sees short rates rising to 3.5% by the end of 2019 (versus 1.9% for the S&P 500). While the firm suspects that a peak is expected in equities, bearish positioning and weak sentiment also present large upside potential if the trade and tariff risks subside.

Morgan Stanley had been very bullish in 2017 and then went to a cold outlook in 2018. The firm’s Mike Wilson sees the volatility and stagnation of 2018 being followed by more of the same in 2019. Morgan Stanley’s 2018 and 2019 S&P 500 targets are 2,750. The firm’s note also noted a 50% chance of a modest earnings recession in 2019, and the firm was known this year for calling for rolling bear markets wherein the S&P 500 trades in a range of 2,400 to 3,000. On last look, the firm was overweight in the financial, energy and utilities sectors, and it was underweight consumer discretionary and technology.

UBS currently expects that the S&P 500’s weakness in 2018 will set the stage for larger gains in 2019. UBS’s base case for the S&P 500 is currently 3,200 in 2019.

Wells Fargo’s Investment Institute basically has said that the easy money in the stock market has been made. With 15% annualized average returns in the S&P 500 over the past decade, the firm is now targeting 6% to 7% in equity returns in 2019, if dividends are included. Surprisingly for a lower outlook, the sectors with growth expected to do best are in financial, information technology and industrials, while health care and consumer discretionary sectors are viewed favorably. The energy sector is viewed unfavorably, and West Texas Intermediate crude is viewed fairly valued between $60 and $70 rather than up at $80 or down at $50. One target was recently seen.

The 2018 forecast from 24/7 Wall St. called for a fair value of 26,400 or higher for the Dow in 2018, while the current level is 24,400, with a 52-week and all-time high of 26,951. Our initial forecasts for 2019 will be issued in December after the dust has settled (hopefully) in the markets.

With several firms having a 2019 fair value average of 3,000 or so for the S&P 500, it’s important to keep in mind that the index already hit a high of 2,940.91 so far this year. That said, the S&P 500’s current level of 2,640 or so is down about 10.2% from its peak.

I'm interested in the Newsletter