Strategists see stellar 2019 for US stocks

The average prediction is for the S&P 500 to rise 11% to 3,056 by the end of next year

The perennial penchant for bullishness among Wall Street strategists has looked a little shaky of late, but that isn’t keeping them from their annual ritual of predicting another up year for stocks.

To date, Bloomberg has gathered 14 forecasts for 2019 from the firms it tracks, and so far the average prediction is for the S&P 500 to rise 11 per cent to 3,056 by the end of next year. While the steepness of the trajectory partly reflects the damage done to stocks since September, it’s the most optimistic call since the bull market began in 2009.

Resilience

The resilience contrasts with the mood among investors, where individuals are raising cash at the fastest pace in three years and hedge funds are going defensive. As scary as the equity rout has been since October — the S&P 500 entered a correction and is still down by almost 6 per cent from its record — little evidence exists that a market crash is looming, the prognosticators say.

Growth is decelerating, but corporate profits are still expanding. The threat of a trade war and higher interest rates is real but the fear probably has gone too far, as reflected in a steep decline in valuations. So says Credit Suisse’s Jonathan Golub, who has the most optimistic target at 3,350.

At 15.8 times forecast earnings, the S&P 500’s multiple has contracted 15 per cent from a year ago, hovering near the cheapest level since early 2016. Two things feed that: stocks sitting still, and profits jumping almost 25 per cent.

“We have pretty strong valuation support for the market. I think investors are too bearish,” Dan Veru, chief investment officer at Palisade Capital Management, said by phone. “They are taking these near-term headwinds, drawing a straight line, and given how long this expansion has been in place, saying this has to be the beginning of the end. My view is, we’re in the fifth inning of a nine-inning ball game.”

Anyone heeding the strategist siren song should be aware of their propensity to lean bullish.