Were Strategists Right about the S&P 500 in 2019?


Jan. 3 2020, Updated 3:22 p.m. ET

The S&P 500 finished last year with an increase of 28.9%. Among the US equity indexes, the Dow Jones Industrial Average (DIA) and Nasdaq-100 Index (QQQ) rose 22.3% and 38%, respectively. Tech stocks constitute 47.5% of the Nasdaq-100 Index. The Dow Jones Index has an exposure of 19.8% to industrial stocks. The US-China trade war might have impacted industrial stocks. 

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Which analyst was most bullish?

Binky Chadha of Deutsche Bank was most optimistic about the equity market increase in 2019. According to a CNBC survey, Chadha expected the S&P 500 (SPY) to reach the 3,250 level in 2019, the highest target price by any strategist in the survey. On December 31, the S&P 500 Index closed just 0.6% below Chadha’s target price.

In May, Chadha reiterated the target of 3,250 for the S&P 500. In a May 21, 2019, interview with CNBC, he said, “I’m very much of the view that things need to get worse before they can get better.” The concerns surrounding the US-China trade war dragged the equity market in May. The S&P 500 and the Dow Jones Index declined 6.5% and 5.4%, respectively.

Other bullish strategists

Thomas Lee of Fundstrat had the second-highest target price of 3,185 for the S&P 500 Index in 2019 in CNBC’s survey. David Kostin of Goldman Sachs (GS) and Tobias Levkovich of Citigroup had respective price targets of 3,100 and 3,050 for the S&P 500 in 2019.

Against the backdrop of the trade war escalation in August, CNBC reported that Kostin advised clients, “Services stocks have less exposure to trade conflict given they have lower foreign input costs that might be subject to tariffs and lower non-US sales than Goods firms.”

In August, Citigroup’s Tobias Levkovich reduced the S&P 500’s 2019 earnings from $170 to $166.20. According to Bloomberg, he wrote to clients, “While it is difficult to accurately assess the impact of any tit-for-tat actions, growing protectionism is not conducive to better earnings.”

Levkovich added, “The overhang of a sluggish economy, trade war threats and potential currency devaluation is likely to take a toll on 2H19 profits.”

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On a year-over-year basis, the S&P 500’s earnings contracted between Q1 2019 and Q3 2019, according to FactSet data. In 2019, the yuan depreciated 1.8% against the US dollar. However, with the announcement of phase one of the trade deal, the yuan recovered from its multiyear low. Phase two of the trade deal talks’ progress is vital to the yuan’s movement.

Top bears on the S&P 500

In the CNBC survey, Francois Trahan of UBS had a price target of 2,550 for the S&P 500. According to Bloomberg, Francois Trahan stated, “A sustainable rebound would require an end to the downtrend in leading economic indicators that has been in place since early 2018 — a development that seems unlikely at this stage.”

The ISM (Institute of Supply Management) US manufacturing PMI (purchasing managers’ index) reading was below 50 between August and December. A reading below 50 indicates a contraction in the manufacturing activities. The tariffs on China’s exports to the US have increased the input costs for US manufacturers. 

Mike Wilson of Morgan Stanley had a price target of 2,750, the second-lowest target in CNBC’s survey. Wilson expected a 9.7% rise on a year-over-year basis. 

Other strategists on the S&P 500

Oppenheimer, CFRA, and Credit Suisse had price targets of 2,960, 2,975, and 3,025, respectively, for the S&P 500 in 2019. Barclays’ Maneesh Deshpande had a price target of 3,000 for the S&P 500.

According to CNBC, Deshpande said in a July client note, “The Fed will still embark on an easing cycle. The weakness in global manufacturing continues unabated and the subdued inflation and softening inflation expectations will likely prompt some ‘insurance cuts’ from the Fed.”

The Fed reduced interest rates three times in 2019, which Fed Chairman Jerome Powell called a “mid-cycle adjustment.” Initially, the equity market reacted negatively to these interest rate reductions. However, analysts believed that the Fed rate cut helped the S&P 500’s rise. 

JPMorgan Chase’s Dubravko Lakos-Bujas had a price target of 3,000 for the S&P 500 in 2019. In a June note, Lakos-Bujas said with respect to value stocks, that “value is currently trading at the biggest discount ever, and offers the largest premium over the last 30 years.”

For more on market trends, please read Is a US Stock Market Crash Coming in 2020?


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