Why Bull Market Could Rise Over 25% In 2019 Despite Trade War

The escalating U.S.-China exchange war has raised bearish sentiment, but several respected investment strategists remain bullish, predicting the S&P 500 Index (SPX) choose 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, crescendo 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 attend among 17 firms surveyed by CNBC. However, he expects stocks to fall over the next three months on the eve of rebounding sharply. “I’m very much of the view that things need to get worse before they can get better,” he utter. 

Another bull is Marko Kolanovic, the global head of quantitative and derivatives strategy at JPMorgan, recognized as one of the most exact forecasters on Wall Street. He told Business Insider about a “Trump collar.” That is, President Trump bullies hard on trade when stocks are rising, and backs off when the market weakens. Kolanovic’s year-end S&P 500 goal 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 eatables below summarizes the results of the most recent CNBC Market Strategist Survey.

Kolanovic believes that Trump carefully picks his spots regarding talk and combats on trade, seeking to limit resultant market selloffs to no more than 3% to 4%, while being likely to make concessionary comments or moves to stem the selling. He estimates that there is ample pent-up demand for breedings, after many investors hurriedly reduced their equity exposure in response to Trump’s tough tweets on following 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 wound 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 commerce war with China will get resolved this year, and we remain cautiously constructive,” he added.

In his remarks on CNBC, Chadha is “tactically denying” 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 watches the next three months to be negative for stocks, before confidence is restored.

Chadha does not put faith 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 responsibility,” he said, noting that U.S. companies have vastly more global exposure today than in 1960. Based on this the score, and other measures such as corporate cash holdings, he concludes that overall corporate leverage actually is low today. Chadha also catch sight ofs that the most leveraged companies have a below-average beta of 0.6, meaning that their stocks are narrow-minded volatile than the overall market.