'It ends next year:' What Wall Street's biggest firms are forecasting for the stock market in 2019, and where they say you should put your money

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."

S&P 500 price target: 2,750

EPS target: $171

Forecast: "After a roller coaster ride in 2018 driven by tighter financial conditions and peaking growth, we expect another range-bound year driven by disappointing earnings and a Fed that pauses," Michael Wilson, the chief US equity strategist, said.

"Bottom-up S&P 500 consensus EPS growth for 2019 is likely to come down as economic growth decelerates sharply and cost pressures rise. We think there is a greater than 50% chance we experience a modest earnings recession in 2019 defined as two quarters of negative y/y growth for S&P 500 EPS. This growth disappointment is likely to be offset somewhat by a Fed that pauses its rate hike campaign by June."

Investing recommendations: "We upgrade consumer staples to overweight and REITs to equal-weight while downgrading industrials to equal-weight. We also maintain a modest preference for large over small caps."

S&P 500 price target: 2,900

EPS target: $171

Forecast: "While we have a constructive view on 2019 overall, we do think it’s possible that the S&P 500 could trade down another ~7- 8% from the November 28th close," said Lori Calvasina, the head of US equity strategy.

• First, the S&P 500 fell 14.2% peak to trough in 2015-2016 (we think the current period resembles that growth scare). A similar move from the Sept 2018 high would take the S&P 500 close to 2500.
• Second, we think a bit more multiple contraction is possible as only 3/4s of the typical contraction around Fed tightening cycles has occurred so far. If the average contraction occurs, it would take the P/E to ~14.85x, implying a similar move down on RBC’s 2019 $171 EPS estimate.
• If those lows are tested and fail to hold, we’d look to the 2010-2011 declines in the US equity market for guidance.
• We do not believe a recession is on the horizon, but if we are wrong, downside moves could be much more meaningful."

Investing recommendations: "On the defensive side, we are upgrading staples to overweight from market weight (it has the best valuation profile among defensives, is deeply out of favor on the sell-side, & ETF flows have been improving).

We remain overweight health care, but are putting it on downgrade watch. Margin expectations are holding up better than other sectors, ETF flows are positive, and our analysts are slightly constructive. But the sector looks crowded in hedge funds and growth funds and is consensus among sell-side strategists.

Health care valuations are no longer cheap, as was the case when we upgraded in July, but do generally look better than REITs & utilities (where we are market weight)."

S&P 500 price target: 3,000

EPS target: $176

Forecast: "We think returns will be primarily driven by earnings and the P/E multiple is unlikely to bounce after re-rating down this year as both the 'Fed Put' and the 'Trump Call' are substantially weaker," said Maneesh Deshpande, the head of US equity strategy.

"We expect moderate 2019 EPS growth of 7% after a remarkable 2018 run (~25% y/y) as several one-off drivers fade and margin compression is a key concern. A recession during 2019 is not our base case but we are edging closer to the edge."

Investing recommendations: "We remain overweight tech & healthcare, upgrade materials to overweight, but reduce financials to market weight and industrials to underweight.

We initiate communication services at market weight and maintain our underweight for consumer discretionary and utilities, and market weight for energy and consumer staples."

S&P 500 price target: 3,200

EPS target: $175

Forecast: "To frame the potential impact on earnings and valuation, we consider upside scenarios in which 1) trade tensions dissolve and existing tariffs are eliminated, and 2) the US economy has further room to run, with structural improvements allowing above potential growth to continue," said Keith Parker, the head of US equity strategy.

"To frame the downside, we consider 1) trade escalation, in which all US-China trade is subject to 25% tariffs; 2) that we are later in the cycle than thought, and Central Banks accelerate hiking to curb inflation while growth slows; and 3) there is a US recession in 2020.

We see the probability of downside increasing; however, the balance of risks is still to the upside as a recession remains unlikely."

Investing recommendations: "We look for a relative catch-up and value amongst the cyclicals. We upgrade Energy tactically to o/w and pair with Materials (u/w) for a 100bp higher div yield and oil cycle upside. We also pair Comm Svcs (o/w) and Industrials (o/w) over Tech (u/w) given similar revisions/ growth but a ~20% relative de-rating.

For defensives, we stay o/w Healthcare and u/w REITs and Utilities. We prefer quality, large>small and would buy the dip in momentum/ growth for this stage of the cycle."

S&P 500 price target: 3,350

EPS target: $174

Forecast: "While investors have celebrated recent US profit and economic strength, above-trend growth rates are unsustainable," said Jonathan Golub, the chief US equity strategist.

"2018's 23% EPS and 2.9% GDP growth are skewed by tax changes, government stimulus, and other nonrecurring items. Importantly, a renormalization in growth to 7-8% EPS and 2.6% GDP should be more than sufficient to fuel a market advance."

Investing recommendations: "The backdrop described above should be sufficient to carry equities higher. However, not all stocks will benefit equally.

Specifically, more cyclical groups should lag on moderating growth, with bond proxies challenged given low recessionary risk. Less economically sensitive names, including TECH+, Health Care and Business Services (within Industrials), should outperform."

S&P 500 price target: 3,079

EPS target: $173.37

Forecast: "The keys to our 2019 estimates are EPS deceleration (but positive growth) and multiple compression," said Chris Harvey, the head of equity and quant strategy.

"Our analysis indicates that Fed tightening, yield curve flattening, multiple compression and a peaking of EPS growth are all relatively correlated. It’s what we’ve seen and what we would expect during a Fed tightening cycle."

Investing recommendations: "Overall, our mantra continues to be don’t fight the Fed but don’t be fearful either. Looking forward, now that equities have traded down, we see double-digit potential over the next 14 months."

S&P 500 price target: 3,150

EPS target: $174

Forecast: "If we learned one thing in 2018, it's that change is going to be constant, and volatility is going to reign supreme for the next couple of years," Brian Belski, the chief investment strategist, said on CNBC.

"And through that, you really want to default to fundamentals and process, and also … be a little contrarian."

Investing recommendations: "We believe that most institutions are dramatically underweight financials and we remain overweight on that sector focusing on companies that have scalable business models, like Bank of America, like Morgan Stanley, like Goldman Sachs and some of the trust banks as well.

Speaking of contrarian, we’re buying the dip in technology, too."