Goldman Sachs: Investors Should Get Defensive in 2019

As of December 14, Goldman Sachs’ (GS) chief equity strategist, David Kostin, expects the S&P 500 (SPY) to reach 3,000 by the end of 2019. The estimate implies an upside of 19.7% from S&P 500’s level at the end of 2018. As reported by CNBC, Kostin assigned a 50% probability to this base case scenario. Goldman Sachs sees a 30% probability of a downside to 2,500 and a 20% probability of an upside to 3,400.

Goldman Sachs thinks that a lot of market movements (VTI) (DIA) in 2019 will depend on investors’ perception regarding the longevity of the current economic expansion. The bank added that according to its meetings with clients, they don’t sound optimistic. Many investors think that the US economy could enter a recession in 2020. A recession in the middle of 2020 could mean that stock valuations would peak during the second half of 2019.

Kostin said, “Investors should increase their defensiveness given our forecast for heightened risk and fat tails.” Goldman Sachs’ conviction for the markets in 2019 is mixed. The bank advises clients to protect themselves by owning “high quality” stocks.

For broad exposure, Goldman Sachs suggests owning utilities (XLU) and communication services, while underweighting consumer discretionary (XLY), industrials (IYJ), materials, and real estate (IYR). For “high quality” stocks, Goldman Sachs recommends stocks with strong balance sheets, a high return on equity, and consistent cash flow. Goldman Sachs recommends stocks including FedEx (FDX), UPS (UPS), and IBM (IBM).

While Goldman Sachs was already positive on gold prices (GLD) (NUGT) in 2019, it turned even more bullish and increased its price forecasts for gold for the next 12 months.

Read Goldman Sachs’ Take on Uncertain Stock Market: Get Defensive for more on Goldman Sachs’ view on the S&P 500 in 2019.