2020 could be a much slower year according to Wall Street’s equity strategists, who see stocks notching significantly more modest profits next year compared to 2019, as U.S. economic growth slows, the pace of stock buybacks deteriorates, and volatility broadens as voters get ready to hit the polls next year.
The current bull market, which began on March 9, 2009, has garnered an impressive 468% gain for the S&P 500 through the first day of November, making this record-long bull run also the best-performing market since World War II, according to The Leuthold Group. The S&P 500, which ramped up nicely to make a new high on Tueday this week, has climbed over 471% in this epic run.
But now some strategists, including Morgan Stanley’s Michael Wilson and UBS’s Francois Trahan, expect stocks to decline on expectations of anemic profits and lackluster fundamentals.
While many analysts still see the market tagging new highs next year, the pace of ascension could be considerably dampened. The median strategist target for 2020 sees the benchmark S&P 500 index climbing to 3,325 by the end of next year, implying a modest 7% climb from the current levels. The average target of 3,272, meanwhile, represents about a 5% gain.
2019 has been an impressive year for equities thus far, as the S&P broke the ominous 3000 level and has continued to run higher, climbing 24% since January. The benchmark index is currently on track to reach its best year since 2013. Including dividends and other payments, an investment in the S&P 500 would have returned 26% in 2019 so far.
″We believe the US economy will muddle through in 2020, but expect EPS growth to disappoint,” Morgan Stanley’s Michael Wilson wrote on Nov. 18. “We prefer value over growth, with a slight defensive bias, given our tepid forecasts and last week’s fade in 10-year Treasury yields and the ratio of cyclical to defensive stocks.”
There is one analyst who believes that 2020 could be a great year however. Credit Suisse’s Jonathan Golub is a vocal market proponent, predicting 10% upside to the S&P 500 from current levels and finishing next year at 3,425.
“These estimates imply EPS growth of 5.2% next year, a substantial improvement from 2019′s 1.0% expected increase,” Golub wrote in a note to clients on Nov. 18. “Economic data has decelerated over the past 1+ years, resulting in the outperformance of Low Vol and Growth stocks, at the expense of Value.”
The S&P 500, along with related ETFs that track the benchmark like the SPDR S&P 500 ETF (NYSEARCA: SPY), iShares Core S&P 500 ETF (NYSEARCA: IVV) and Vanguard 500 Index (NYSEARCA: VOO), has increased more than 20% in 2019, and with potential forward momentum could push into 2020, investors could look into these broad market ETFs.
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