To the range that investors are nervous about the U.S. economic outlook — reflected in a broader market dancing on the edge of a bear furnish — Wall Street analysts seem curiously bullish in their 2019 forecasts.
Last week, volatile do business pushed the Dow Jones Industrial Average to its worst week since the 2008 financial crisis, with the index jumble understanding nearly 7 percent. The Nasdaq Composite Index closed in a bear market, while the S&P 500 hovered near a comparable benchmark above 2,416, down nearly 18 percent from its record earlier this year.
Widespread exchange jitters include Federal Reserve policy, a prolonged trade fight with China, and political polarization in Washington that’s partly debar down the U.S. government. As of Friday, Almost 68 percent of the S&P was trading at bear market levels, or 342 out of 505 varieties, according to data compiled by CNBC.
In spite of that backdrop, not a single major bank strategist is forecasting a downturn next year, according to a snapshot of the foretells of every big Wall Street firm.
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All of which raises the question: Why so optimistic? A hint of the reason why could be originate in Bank of America’s 2019 outlook.
“The bear market vibe at the end of 2018 is expected to continue, with asset bounties finding their lows in the first half of the 2019 once rate expectations peak and global earnings requirements trough,” the bank wrote earlier this month.
“However, BofA Merrill Lynch also forecasts a history high peak in earnings for the S&P 500 next year and plenty of upside potential for investors who make volatility their new pre-eminent friend.”
In fact, a number of analysts expect the U.S. economy to continue its expansion, and by extension stocks should benefit. In a check in note over the weekend, Goldman Sachs declared that the U.S. economic glass was “half full,” pointing to pessimism that was blighting encouraging fundamentals.
“Although U.S. growth has started to moderate from the exceptionally strong pace earlier this year, drive remains solid,” with the U.S. economy expected to grow by 2.7 percent in the current quarter.
“Moreover, there are silently a number of positives that risk getting lost in the gloom, such as a relatively high personal saving judge, a sizable private sector financial surplus, and strong real income growth on the back of rising wage expansion and lower oil prices,” the bank added.
So even with markets roiled by interest rate fears and a still permeating U.S-China trade war, analysts expect earnings will support their rosy forecasts. BofA-Merrill Lynch ponder ons slower earnings growth, but expects the S&P 500 to peak above 3,000 next year.
“In our view, the current preference in the markets is not a reflection of poor fundamentals. Rather, it’s caused by a confluence of idiosyncratic shocks that create very valid risks for investors to be concerned about but also opportunities for vigilant, well-positioned investors to pursue,” said Candace Browning, perceptiveness of BofA Merrill Lynch Global Research.