Stocks have sunk well below their all-time highs, with various major indexes across the globe having endured corrections of at least 10%, or bear market declines of 20% or more. The most widely followed barometer of U.S. stocks, the S&P 500 Index (SPX), came within a hair of a 20% bear market drop in late December, and closed on January 3, 2019 at 16.8% below its all-time record peak set in September. What lies ahead in 2019? Three respected market gurus recently offered their own views.
Byron Wien of The Blackstone Group is "optimistic" and Jeremy Siegel of The Wharton School expects "quite a good year," both of them envisioning gains of up to 15% for the S&P 500 in 2019. However, Jack Bogle, founder of The Vanguard Group, advises taking "a little extra caution." Meanwhile, the consensus view of market strategists on Wall Street is that the index will close 2019 at a new record high of 3,000, up by 19.7% from the 2018 close, per a CNBC survey.
Can the S&P 500 Rebound?
- S&P Forecast Gain in 2019, per Wall Street Strategists: 19.7%
- S&P Full-Year Loss in 2018: 6.2%
- S&P YTD Loss in 2019: 2.4% (through the close on Jan. 3)
Sources: CNBC, Barron's, Yahoo Finance
What It Means for Investors: 3 Gurus' Perspectives
"I'm optimistic. I think the fundamentals are sound," is what Byron Wien, vice chairman of the Private Wealth Solutions unit at The Blackstone Group, told CNBC. He believes that the S&P 500 will gain 15% in 2019. One key to his prediction is his expectation that the Federal Reserve will not raise interest rates at all in 2019, contrary to the widespread view that it will announce two or three rate hikes this year.
"Inflation remains subdued and the 10-year Treasury yield stays below 3.5%. The yield curve remains positive," Wien writes in a release by Blackstone of his "Ten Surprises for 2019," following an annual tradition that he started in 1986, when he was chief U.S. investment strategist at Morgan Stanley. "A recession before 2021 seems unlikely," Wien also writes, adding, "improved earnings enable equities to move higher."
Jeremy Siegel, a professor of finance at Wharton noted for his longtime advocacy of investing in stocks, predicts an advance of 5% to 15% for the S&P 500 in 2019, per another CNBC story. He observed: "We went from a rosy view to now, 'Oh my God, there's going to be a recession.' The truth will be somewhere in between, and that leaves the stock market very attractive now."
Like Wien, Siegel does not believe that a recession is likely to begin in 2019, and he also thinks that the Fed won't raise interest rates in 2019. On equities, he asserts that "this is a cheap market," even if corporate earnings do not grow at all this year.
Meanwhile, Jack Bogle, noted for popularizing index funds during his tenure at Vanguard, sees "clouds on the horizon" and advises taking "a little extra caution" right now, per an interview with Barron's. These clouds include high levels of government and corporate debt, as well as a "great upheaval" in international trade, which includes "the mystery of Brexit, which will be very disruptive to the world trade system."
"It's time to really be thinking how much risk you want to have," Bogle insists. Warning that "trees don't grow to the sky," he thinks that automatically buying on the dips in the stock market, as many index fund investors have done in recent years, is not likely to be a winning strategy right now. On the other hand, he advises those saving for long-term goals to "Keep investing, no matter how frightened you are."
Even those investors who share the optimism of Wien and Siegel about 2019 should heed Bogle's warnings, and brace themselves for the inevitable setbacks. Indeed, as Bogle suggests, investors with really long-term horizons are those who are best equipped emotionally to avoid hasty, panic-driven decision making in the face of market turmoil.