2019 has been a great year for US stock markets. The S&P 500 is up 25.3%, the Nasdaq 30% and the Dow Jones Industrial Index 20%. All part of a historic bull run for US stock markets, which started over five years ago.
Will it keep going into 2020? Wall Street analysts seem to think we'll see further gains on the S&P 500 next year. Yet, it won't come close to 2019's performance. So, what pressures will US stock markets face? And just how bullish are the analysts?
Amount the S&P 500 has risen in 2019
S&P 500 in 2020: analyst expectations
According to a Market Watch survey, 3,425 is the most bullish analyst forecast for the S&P 500 in 2020. That comes from Jonathan Golub at Credit Suisse and would mean an 8.8% gain. Golub cited corporate buybacks and a stronger economy as reasons for optimism.
David Kostin at Goldman Sachs’ target is 3,400, an 8% gain. Kostin points to average growth and rising profit margins in his analysis.
Binky Chadha, chief global strategist at Deutsche Bank, has put a 3,250 target on the S&P 500. That's a 3.3% gain on Friday’s close. It’s also the same target he had for 2019.
Chadha is trimming his optimism because he thinks the market is overvalued. Yet, Chadha says a reduction in share buybacks and the US election will affect what investors will pay.
S&P 500: 2020 year-end analyst targets
|Analyst||Organisation||Target||Implied gain (6/12)|
|Jonathan Golub||Credit Suisse||3,425||8.9%|
|David Kostin||Goldman Sachs||3,400||8.1%|
|Brian Belski||BMO Capital Markets||3,400||8.1%|
|Tony Dwyer||Cannaccord Genuity||3,350||6.5%|
Mike Wilson at Morgan Stanley is the most bearish. Wilson's target for 2020 is 3,000. This would be a 4.7% drop on the current levels. Wilson thinks global trade will stabilise, but tight labour markets will hurt growth.
S&P 500 trends that could continue
S&P 500 stock trading volumes decrease
This year the average daily trading of S&P 500 stocks fell to a 10-year low. If trading volumes dwindle, then traders might find it tough to find buyers. A problem that was widely cited as exacerbating the Q4 2018 tech sell-off.
Yet, this might not be an issue, given the increased trading activity in ETFs and indices.
Tim Edwards, a managing director at S&P Dow Jones Indices, explained to MarketWatch:
“Trading volumes in stocks is a small part of the story compared to trading in indices, futures, and ETFs and so on. It doesn’t alarm me that you’re seeing less volume in individual stocks.”
“Trading volumes in stocks is a small part of the story compared to trading in indices, futures, and ETFs and so on. It doesn’t alarm me that you’re seeing less volume in individual stocks” - managing director at S&P Dow Jones Indices Tim Edwards
Individual share traders might want to branch out into derivative markets in 2020.
Closing volumes continue to increase
Closing auctions are making up a large proportion of daily trading volume. This has led to more liquidity at the end of the day. Something that traders might want to build into their trading strategy. More liquidity can mean less volatility. So, is there now less opportunity for short-term traders?
Eight years ago, closing auctions represented 4% of the daily volume. Today it's 10%. According to Trader Magazine, the market impact near the close is only half of that during mid-day. The average spread drops from 20 basis points in the morning to 5 basis points at the close
The trend isn’t just happening in US stock markets. It's happening in Euro markets, too. According to Reuters, the last 5 minutes of trading is now the busiest on Europe's bourses. Something to bear in mind when executing trades in the new year.