With the S&P 500 index officially in the red in 2018, many analysts on the Street are becoming more bearish on the market's prospects for the end of the year and into 2019. According to reports from Goldman Sachs, Barclays, and Wells Fargo this week, investors should start to play the defensive and protect their portfolios.
Goldman Recommends Raising Cash
In a note to clients this week, Goldman Sachs flagged a handful of headwinds facing the broader market, forecasting that the S&P 500 will close at $2,850 this year and $3,000 in 2019.
“If the full 25 percent tariffs are levied on all imports from China the earnings impact could be significant, potentially eliminating any profit growth next year," Goldman wrote.
Analysts recommended that investors raise cash, which they expect to "represent a competitive asset class to stocks for the first time in many years." Within equities, Goldman likes defensive sectors and rates utilities at "overweight."
Barclays Forecasts Flat Growth in 2019
Analysts at Barclays echoed the downbeat sentiment with an S&P 500 year-end target at $3,000 for both 2018 and 2019. The investment bank warned clients on fading one-off boosts like corporate and personal tax cuts, as well as looming downsides from heightened trade tensions
"We expect moderate 2019 EPS growth of 7% after a remarkable 2018 run (~25% y⁄y) as several one-off drivers fade... Both earnings and economic growth are likely to normalize during 2019," wrote Maneesh Deshpande, Barclays' head of U.S. equity strategy.
Wells Makes the Bull Case
But not all on the Street are as bearish. In an interview with CNBC on Tuesday, Wells Fargo strategist Scott Wren noted that the three major questions spooking investors — including a potential policy mistake by the Federal Reserve, global growth deceleration and shrinking margins — all remain "low probabilities." Although they are not "zero probabilities," Wren argues that in a game of probabilities, the best bet right now is for investors to go on the offensive. In Wren's words, investors hoping to cash in during a period of heightened volatility should "step in here and buy some stocks."
Wren indicated two main factors set to drive market action by year-end are news on U.S. trade and Fed Chair Jerome Powell's statement during a press conference following December's meeting. In the event of positive news, the S&P 500 could rally to over $2,800 or $2,900, according to the analyst, who recommends industrials, consumer discretionary, financials, and health care.