At the end of each year, it is quite common, and expected, that each major firm will issue their forecasts for the economy, interest rates and the stock market in the year ahead. Most strategists on Wall Street are calling for upside in the S&P 500 in 2020, just not as strong as what has been seen in 2019.

Canaccord Genuity had been in the middle of the pack with its forecast that the S&P 500 would reach 3,350 in 2020. The highest target seen from other strategists was 4,425 from Credit Suisse (as of December 2, 2019), and most firms have not yet made changes to their full 2020 forecasts. Now Canaccord Genuity’s equity strategist Tony Dwyer has raised his target to 3,440.

Dwyer’s forecast calls for a reacceleration of earnings, lower inflation and Federal Reserve policy allowing the S&P 500’s earnings multiple to expand toward 20 times. That said, his $172 in earnings per share estimate for the S&P 500 is about $6 short of consensus expectations. His report said:

The bullish story for 2019 was based on the economy experiencing a non-recession slowdown that was dramatic enough to cause the Fed to reverse the policy mistakes made in late 2018. As a result of the 2019 global economic slowdown, earnings have come in below expectations. However, looking ahead, our EPS growth rate goes up from 5% to 6%, but comes off a lower base of $162 per share. Our SPX EPS estimate for 2020 moves from $176 to $172. In addition to raising our growth rate assumption, we are also raising our multiple assumption from 19x to 20x. This reflects the Fed literally telling us they will ease further on any weakness and will not raise rates until inflation is meaningfully above their target, which likely won’t happen for the foreseeable future.

The summary of the forecast shows an interesting point about the so-called Fed put. Fed Chair Jerome Powell is now seen as being on the sidelines for the foreseeable future, and that is allowing for an offensive playbook. Dwyer now sees any stock market weakness to be limited and temporary at less than a 5% drop, and any weakness of that magnitude would offer a more attractive entry point for a stock market that is likely to be led by the more offensive sectors.

Another day, another raised estimate for 2020 stock market expectations. The S&P was last seen at about 3,145, and that means Canaccord Genuity’s 3,440 forecast calls for a gain of about 9.4% in a bull market that is in its 11th year.

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