U.S. Equities Gloom

When it comes to U.S. stocks, 2018’s bears are still skeptical. For months, Cantor Fitzgerald’s Peter Cecchini has forecast the S&P 500 to finish the year at 2,805, one of the more bearish projections among Wall Street’s strategists, and almost 7 percent above Friday’s close.

A deceleration in U.S. growth, driven in part by higher funding costs on tighter financial conditions, and a frothy commercial and industrial loan market will create credit stress next year, according to Cecchini.

“Our disposition towards equities has moved from buy-the-dip to sell-the-rally,” said Cecchini, Cantor’s chief global market strategist. “If I’m not constructive on the credit markets, then I won’t be constructive on the equity markets.”

He has company in his pessimism. Morgan Stanley’s Mike Wilson, the biggest equity bear on Wall Street, forecast last month that the S&P 500 will end 2019 at 2,750, the same target he called for this year. As the fiscal boost from tax cuts wears off and global growth decelerates, Wilson expects a “ material” deceleration in corporate profits.

That’s at odds with what most strategists expect. The average prediction as of the end of November was for the S&P 500 to climb to 3,056 by the end of next year, according to 14 forecasts gathered by Bloomberg. It’s the most optimistic year-ahead call since 2009.

Emerging Cheer

Jordi Visser at Weiss Multi-Strategy Advisers, who predicted the peak of the developing-market rally in late January, expects emerging markets to be a bright spot in 2019 as the dollar stumbles. Visser is calling for the iShares MSCI Emerging Markets ETF to outperform the S&P 500 Index by 15 percent to 20 percent in 2019. Chinese Internet stocks, developing-nation sovereign debt and emerging-market currencies look particularly attractive.

"Bullishness comes from an expectation of a weaker dollar next year on the back of easier U.S. monetary policy, the lag of recent Chinese stimulus measures and a focus of value as a factor in 2019 rather than growth," said New-York based Visser, chief investment officer at the $1.7 billion hedge fund.

Tania Escobedo, a strategist at RBC Capital Markets LLC who correctly called a slide in the Brazilian real this year when most of the market was bullish, now has another contrarian call for 2019. She’s wagering against the real and going long the Mexican peso. Most investors are optimistic about Brazil’s incoming government and concerned about the populist rhetoric from Mexico’s Andres Manuel Lopez Obrador.