The historic bull market that has kept stocks afloat for more than a decade will continue at least through 2020 as profit headwinds subside and share buybacks remain "abundant," Credit Suisse told clients on Monday.
In his 2020 outlook, Chief U.S. equity strategist Jonathan Golub said the softer economic data that marked much of this year should improve in 2020 and put the S&P 500 on track to finish next year at 3,425, a 9.8% climb from Friday's close.
He based his S&P target on an earnings-per-share estimate of $164.50 in 2019 and $173 in 2020.
"These estimates imply EPS growth of 5.2% next year, a substantial improvement from 2019's 1.0% expected increase," Golub wrote in a note to clients. "We are upgrading more economically-sensitive groups including Financials, Industrials, Materials, and Energy. We are downgrading more defensive sectors including Staples, Utilities, REITs, and Communications."
Credit Suisse is overweight technology, consumer discretionary, financials, industrials and materials stocks. It is underweight staples, utilities and REITs. Golub said better economic data should benefit groups that underperformed in late summer like financials, industrials and materials.
"Economic data has decelerated over the past 1+ years, resulting in the outperformance of Low Vol and Growth stocks, at the expense of Value," he wrote. "This leadership shifted more recently, on aggressive Fed action (3 cuts) and improving economics. Our work indicates that this rotation will continue through the early part of 2020."
Key to the investment bank's more optimistic outlook are four tenets:
Golub's first S&P 500 target for 2019 more than one year ago was 3,350. At the time in September 2018, that target implied not only a 12.2% rally through the end of last year to his 3,000 projection, but an additional 11.7% climb in 2019.
A dramatic spike in volatility later in 2018 and a Christmastime sell-off, however, forced Golub to temper his expectations to a far more modest 2,925 for 2019. The market index finished 2018 just above 2,500 and ended last week at 3,120.46, a 24% rally year to date.
Though it's still early and several top strategists have yet to publish their own 2020 estimates, Golub is the most bullish on 2020 of those tracked by CNBC. The median 2020 estimate is 3,350 while the average is 3,235, based on the first five targets.