Why Wall Street Sees Continued Stock Gains and All-Time Highs in 2020 for the S&P 500

December 2, 2019 by Jon C. Ogg

24/7 Wall St. has put together a list of preliminary 2020 forecasts by the top brokerage firms. Many calls have yet to be made, and many others just haven’t been released yet. That said, The S&P 500 was up 25% so far in 2019, after the worst fourth quarter kept last year’s returns handily muted. These are all subject to change as more and more economic data are released.

Credit Suisse’s S&P 500 price target of 3,425 represents about 9% upside from current levels and was based on 5.2% earnings per share growth in 2020 (up from just 1% growth in 2019). The firm sees P/E ratios rising by roughly a half multiple point by year-end 2020. Credit Suisse also has realigned its sector recommendations to reflect a more pro-cyclical view: Technology, Discretionary, Financials, Industrials, and Materials sectors are all favored, and Defensive sectors are now expected to lag.

Merrill Lynch had a 2,950 target on the S&P 500 for 2019, but the target was last seen up at 3,300 for 2020. Merrill Lynch’s Savita Subramanian sees U.S. domestic earnings growing faster than multinationals, with slowing estimate cuts for value stocks and guidance being healthy and better for small-cap stocks. The team also talked up its outlook for value stocks being cheaper than ever against growth, and Financials is the largest value sector and the firm’s highest conviction overweight for a panoply of reasons.

JPMorgan already opined in late-October and the start of November that the market could already reach its mid-2020 target of 3,200 before the end of 2019 or at the start of 2020. The firm also predicted that there could be as much as 25% earnings growth if the United States and China reach a trade deal, if such a deal also unwound all the existing tariffs that have been implemented.

RBC Capital Markets recently noted that the biggest equity fund managers are more upbeat on stocks than they have been in months. While that may portend a near-term market top from excessive sentiment and for near-term consolidation (and while it could be an overhang ahead if unresolved), RBC’s Lori Calvasina expects stocks to recover in 2020 and to see 3,350 on the S&P 500 next year.

S&P’s own David Aurelio already has some preliminary forecasts for earnings in 2020. This report relies on whether companies are exceeding expectations and will change each earnings season, but the forecast for the S&P 500 entire earnings per share was looking for $142.22 in 2019 (up from $161.93 in 2018). The current view is for earnings to trend up to $178.28 per share in 2020 and then a preliminary $197.11 per share in 2021. That would represent rekindled earnings growth of 9.9% in 2020 and 10.5% in 2021.

The CME FedWatch Tool had better than a 93% chance that federal funds would end 2019 at the current 1.50% to 1.75% target range. The odds were only 2.4% that the 2020 year-end fed funds rate would be higher than the current 1.50% to 1.75% range, with 36.7% probability that they are flat and 37.9% probability that the range has dipped to 1.25% to 1.50%.

The preliminary 2020 price targets for the S&P 500 index have been issued by major Wall Street firms. These are of course subject to change based on the economy or the market, and several strategists downgraded their aggressive S&P targets at the start of 2019 after the worst December stock market performance in all of our lives. Here are some of the top targets that have been seen:

  • Merrill Lynch: 3,300
  • BMO Capital: 3,400
  • Canaccord Genuity: 3,350
  • Citigroup: 3,300
  • Credit Suisse: 3,425
  • Goldman Sachs: 3,400
  • Morgan Stanley: 3,000
  • RBC: 3,350
  • UBS: 3,000

With nearly a month until year-end, these preliminary targets are subject to change, and other non-broker and buy-side targets will be released ahead of 2020.

Here was the 24/7 Wall St. view heading into 2019 with a 28,000 level on the Dow being called for


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