- Wall Street veteran Byron Wien predicts a major comeback to new highs for the stock market in 2019.
- In a preview of his 34th annual list of year-ahead market surprises, Wien also thinks the Fed won't raise interest rates at all this year.
- Any whiff of a recession won't come until 2021, he adds.
Wall Street veteran Byron Wien on CNBC Thursday predicted a major comeback to new highs for the stock market in 2019.
The S&P 500 in 2018 dropped more than 6.2 percent, breaking a two-year winning streak and logging the worst yearly performance since the financial crisis in 2008 when it tanked nearly 38.5 percent.
In a preview of his 34th annual list of year-ahead economic, financial market and political surprises, Wien said he sees the S&P 500 gaining 15 percent in 2019, and exceeding the index's Sept. 21 all-time intraday record.
The S&P 500, in this year's first trading session on Wednesday, fought off sharp declines, closing up 3 points but remaining more than 14.6 percent below September's intraday high of 2,940.91.
"I'm optimistic," said Wien, during a "Squawk Box" interview. "I think the fundamentals are sound."
On what would help stocks, the vice chairman of private wealth solutions at Blackstone said he thinks the Federal Reserve won't raise interest rates at all this year. "It's a surprise. Everybody expects thinks it's going to be two or three." He added that any whiff of a recession won't come until 2021.
After its fourth 2018 hike in December, the Fed projected two rate increases for this year. The stock market started going haywire in October after Fed Chairman Jerome Powell seemed to indicate a strong path higher for rates, remarks he later walked back.
Looking back at his surprises list for last year, Wien got it mostly right on the stock market, the Fed and the economy.
In a January 2018 press release, Wien wrote: "The U.S. economy has a better year than 2017, but speculation reaches an extreme and ultimately the S&P 500 has a 10 percent correction. The index drops toward 2,300, partly because of higher interest rates, but ends the year above 3,000 since earnings continue to expand and economic growth heads toward 4 percent."
The economy was better last year than in 2017, and hit 4.2 percent growth in the second quarter. The S&P 500 did go into corrections, and briefly a bear market, with a 52-week low of 2,346.58 on Dec. 26 due to rate concerns. But the S&P recovery that Wien predicted to 3,000 for year-end did not happen. In fact, the index closed on New Year's Eve at 2,506.85.
In a finance career spanning about 50 years, Wien started putting out his annual surprise list in 1986 when he was the chief U.S. investment strategist at Morgan Stanley. He joined Blackstone in 2009.
Here's the full rundown of Wien's Top 10 Surprises for 2019 list, written in his own words:
- The weakening world economy encourages the Federal Reserve to stop raising the federal funds rate during the year. Inflation remains subdued and the 10-year Treasury yield stays below 3.5%. The yield curve remains positive.
- Partly because of no further rate increases by the Federal Reserve and more attractive valuations as a result of the market decline at the end of 2018, the S&P 500 gains 15% for the year. Rallies and corrections occur but improved earnings enable equities to move higher in a reasonably benign interest rate environment.
- Traditional drivers of GDP growth, capital spending and housing, make only modest gains in 2019. The expansion continues, however, because of consumer and government spending. A recession before 2021 seems unlikely.
- The better tone in the financial markets discourages precious metal investors. Gold drops to $1,000 as the equity markets in the United States and elsewhere improve.
- The profit outlook for emerging markets brightens and investor interest intensifies because the price earnings ratio is attractive compared to developed markets and historical levels. Continuous expansion of the middle class in the emerging markets provides the consumer buying thrust for earnings growth. China leads and the Shanghai composite rises 25%. The Brazil equity market also comes to life under the country's new conservative leadership.
- March 29 comes and goes and there is no Brexit deal. Parliament fails to approve one and Theresa May, arguing that a change in leadership won't help the situation, remains in office. A second referendum is held and the U.K. votes to remain.
- The dollar stabilizes at year-end 2018 levels and stays there throughout the year. Because of concern about the economy, the Federal Reserve stops shrinking its balance sheet, which is interpreted negatively by currency traders. The flow of foreign capital into United States assets slows because of a softer monetary policy and a lack of need for new capital for business expansion.
- The Mueller investigation results in indictments against members of the Trump Organization closest to the president but the evidence doesn't support any direct action against Trump himself. Nevertheless, an exodus of Trump's most trusted advisors results in a crisis in confidence that the administration has the people and the process to accomplish important goals.
- Congress, however, with a Democratic majority, gets more done than expected, particularly on trade policy. Progress is made in preserving important parts of the Affordable Care Act and immigration policy. A federal infrastructure program to be implemented in 2020 is announced.
- Growth stocks continue to provide leadership in the U.S. equity market. Technology and biotech do well as a result of continued strong earnings. Value stocks other than energy-related businesses disappoint because of the slowing economy.