Credit Suisse Sees 15% Upside For Stocks In 2019

Monday’s slide has everyone on Wall Street taking sides on whether investors can expect a bear market or a rebound in 2019. Credit Suisse analyst Jonathan Golub in a Tuesday note said he's betting on a market bounce in 2019 based on several factors.

Benign Slowdown

Spikes in the VIX and volatility ETFs like the BRCL BK IPTH S&P 500 VIX SH FTRS ETN VXX have historically been followed by periods of lower volatility and several months of relatively strong performance from the market, Golub said. The VIX is up 73 percent in the past three months.

While Golub said there will certainly be a slowdown in EPS and GDP growth in 2019, the slowdown will be “benign” since 2018 growth numbers were given a huge boost thanks to corporate tax reform. Credit Suisse is calling for 2.5 percent GDP growth and 6 percent to 7 percent EPS growth next year.

In addition, Golub said recent dovish commentary from Fed Chair Jerome Powell suggests the U.S. is approaching neutral-rate territory and will likely be the first major country to reach that point. Golub said a pause in the Fed tightening schedule in 2019 should be well-received by the market.

2019 Outlook

Golub said the recent batch of volatility in the market hasn’t impacted Credit Suisse’s 2019 outlook at all.

“The expected trajectory for EPS and the economy remain virtually unchanged during the recent market disruption,” he wrote in the note.

Credit Suisse is calling for 2019 and 2020 S&P 500 EPS of $174 and $185, respectively. Those numbers each represent more than 6 percent annual growth.

Credit Suisse also lowered its year-end 2019 target for the S&P 500 from 3,350 to 2,925, suggesting about 15 percent upside from Monday’s closing price.

With less than two weeks left in the year, the SPDR S&P 500 ETF Trust SPY is on track to finish the year down 3.6 percent.

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