The escalating U.S.-China trade war has raised bearish sentiment, but several respected investment strategists remain bullish, predicting the S&P 500 Index (SPX) will be up by 25% to 30% in 2019. Through the close on May 23, the S&P 500 gained 12.6% year-to-date.
But the ride may be bumpy. Binky Chadha, head of asset allocation and chief equity strategist at Deutche Bank, projects that the S&P 500 will end 2019 at 3,250, up by 29.7% for the year, and the most bullish call among 17 firms surveyed by CNBC. However, he expects stocks to fall over the next three months before rebounding sharply. “I’m very much of the view that things need to get worse before they can get better,” he said.
Another bull is Marko Kolanovic, the global head of quantitative and derivatives strategy at JPMorgan, recognized as one of the most accurate forecasters on Wall Street. He told Business Insider about a "Trump collar." That is, President Trump pushes hard on trade when stocks are rising, and backs off when the market weakens. Kolanovic's year-end S&P 500 target is 3,000, or a 19.7% gain for 2019, but he believes that a successful trade resolution can propel the index to 3,200, up by 27.7% for the year.
The table below summarizes the results of the most recent CNBC Market Strategist Survey.
Wall Street's Stock Market Forecasts
(Ending Value of S&P 500 in 2019)
- Most bullish: Binky Chadha (Deutsche Bank), 3,250 (+29.7% in 2019)
- Average of 17 firms surveyed: 2,961 (+18.2% in 2019)
- Most bearish: two strategists at 2,750 (+9.8% in 2019)
- Bears: Mike Wilson (Morgan Stanley), Maneesh Deshpande (Barclays)
- S&P closed at 2,822 on May 23
Significance For Investors
Kolanovic believes that Trump carefully picks his spots regarding talk and actions on trade, seeking to limit resultant market selloffs to no more than 3% to 4%, while being ready to make concessionary comments or moves to stem the selling. He estimates that there is ample pent-up demand for stocks, after many investors hurriedly reduced their equity exposure in response to Trump's tough tweets on trade earlier in May.
"The reason for our stance is the very low positioning across virtually all types of equity investors, and so far limited technical damage by the recent increase in volatility," Kolanovic said in a recent note to clients, as quoted by BI. "Our base case was, and still is, that the trade war with China will get resolved this year, and we remain cautiously constructive," he added.
In his remarks on CNBC, Chadha is "tactically negative" but "very constructive longer out." Based on indicators of slowing U.S. economic growth, as well as the market's long history of 2% to 5% pullbacks every few months, he expects the next three months to be negative for stocks, before confidence is restored.
Chadha does not believe that soaring corporate debt is a growing risk for the market. "[U.S.] GDP is outdated as a means for looking at [U.S.] corporate debt," he said, noting that U.S. companies have vastly more global exposure today than in 1960. Based on this fact, and other measures such as corporate cash holdings, he concludes that overall corporate leverage actually is low today. Chadha also finds that the most leveraged companies have a below-average beta of 0.6, meaning that their stocks are less volatile than the overall market.