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Credit Suisse: Less Bullish on SPY, Still Positive

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Jan. 16 2019, Updated 7:30 a.m. ET

Credit Suisse cut SPY’s target

Like many other equity strategists, Credit Suisse (CS) also slashed the S&P 500’s (SPY) target for the end of 2019 from 3,350 to 2,925 in December. Credit Suisse’s previous target suggested the most bullish outlook among Wall Street analysts on the stock markets. Even the new target suggests a gain of 16.7% from SPY’s level in 2018. As reported by CNBC, Credit Suisse’s chief US equity strategist, Jonathan Golub, said, “Our lower price target reflects recent volatility, rather than a change in fundamental backdrop. Since late September, volatility has more than doubled, driving stock prices down 13 percent.”

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Stance on rate hikes

Golub attributed the economic growth in 2018 to tax reform and other government stimulus measures, which he thinks will fade in 2019. He also predicted that the Fed will say that it’s done hiking rates. Fed Chair Jerome Powell’s two recent appearances confirmed the Fed’s dovish stance on rate hikes.

Golub kept the EPS target for the end of 2019 unchanged at $174, which implies a PE ratio of 16.8x. Golub said that “with recession risks well-contained, such a backdrop should be more than sufficient to propel the market forward.”

Investment outlook in 2019

In Credit Suisse’s investment outlook for 2019, it outlined the base case for the US economy (DIA) (VTI) in 2019. While there might be some signs of weakness, the “risk of an outright contraction, in contrast, seems quite limited.” Credit Suisse also expects the US yield curve (TLT) (BND) to flatten more.

Credit Suisse’s top picks for 2019 include Advance Auto Parts (AAP), Energy Transfer (ET), Honeywell International (HON), and IHS Markit (INFO).

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