S&P 500 price target: 2,900
EPS target: $170
Forecast: “Still-supportive fundamentals, still-tepid equity sentiment and more reasonable valuations keep us positive,” Subramanian, the head of US equity and quant strategy, said.
“But in 2019, we see elevated likelihood of a peak in the S&P 500. Our rates team is calling for an inverted yield curve during the year, homebuilders peaked about one year ago and typically lead equities by about two years and our credit team is forecasting rising spreads in 2019.
Assuming the market peaks somewhere at or above 3000, our forecast is for modest downside in 2019.”
Investing recommendations: “We are overweight health care, technology, utilities, financials and industrials. Our underweights are consumer discretionary, communication services, and real estate.
For most of this cycle, stocks enjoyed a lack of compelling asset class alternatives (bonds had elevated price risk, cash yields hit rock bottom). But cash is now competitive and will likely grow more so. Cash yields today are higher than dividend yields for 60% of the S&P 500 today, and our Fed call puts short rates close to 3.5% by the end of 2019, well above the S&P 500’s 1.9% dividend yield.”
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