Mike Wilson, the biggest equity bear on Wall Street whose prediction has proved prescient this year, has a similar outlook for 2019.
The chief U.S. equity strategist at Morgan Stanley forecast that the S&P 500 will end next year at 2,750, the same level he forecast for 2018. That’s about 3 percent above the index’s current level. With five weeks to go for the year, Wilson’s estimate is by far the closest of all estimates to coming true.
Wilson has stood out this year in predicting a “rolling bear market,” where financial assets suffer a series of blows amid rising interest rates and a less-synchronized global economic expansion. That’ just how things have unfolded, with turmoil in emerging markets followed by a tech-led rout in U.S. equities and then a sell-off in the credit market.
Prospects for a “material” deceleration in corporate profits underpin Wilson’s persistent caution. As the benefit from tax cuts wears off and global growth weakens, the rate of earnings expansions for S&P 500 companies will slow to 4.3 percent in 2019 from 23 percent this year. And the odds of two consecutive quarters of negative growth is higher than 50 percent, he predicts.
The Federal Reserve, which Wilson expects to pause its interest-rate hikes in June, will help offset the negative profit backdrop. The fastest valuation contraction since 2011, with the S&P 500’s price-earnings ratio falling 18 percent from last year’s peak to a low of 15 in October, also helps, he said.