One of the most bullish Wall Street firms for 2019 just decided that the recent market volatility was reason enough to lower its S&P 500 price target for 2019. Credit Suisse’s prior target for 2019 had been 3,350 and was the most bullish of the bulge-bracket firms. Its new target is more in-line with other firms at 2,925 by the end of 2019.

Most investors see analysts raise and lower targets routinely, and this is yet another “downgrade-lite” call. Had Credit Suisse stuck with its 3,350 target, it was implying upside of about 25%. Now that’s almost 15% upside expected, with a lower VIX and a soft economic landing offering a backdrop for higher stock prices.

One key issue that stood out in this U.S. Equity Strategy call was that Credit Suisse maintained the S&P 500’s earnings per share (EPS) targets for 2019 and 2020. Those targets are $174 and $185, respectively. This implies growth of 6.7% for 2019 and 6.3% for 2020.

What happens in calls like this is the opposite of a “multiple expansion,” wherein the market is willing to pay more for earnings. The Credit Suisse view is that the market will be paying a lower multiple for those forward earnings than had been expected.

Before thinking this “downgrade-lite” call is too harsh, note that Credit Suisse actually expects a near-term bounce as volatility subsides. The firm also is looking at benign earnings deceleration ahead, after 2018 experienced above-trend EPS and GDP growth from the tax changes, government stimulus and other non-recurring items. In short, it sees a soft-landing taking place in the economy.

The strategy report said: “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.”

Credit Suisse sees 2.5% growth in gross domestic product in 2019. The firm also shuns the notion that a recession is on the horizon: “Importantly, with recession risks well-contained, such a backdrop should be more than sufficient to propel the market forward.”

There is also a notion of what to expect from the Federal Reserve in 2019:

Market expectations confirm Jerome Powell’s recent comments that we are approaching a neutral Fed Funds rate, indicating the U.S. will be the first country to renormalize from zero-rate policy. We believe the completion of this process will be a meaningful catalyst for market upside in 2019.

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