After ebullient 2019, Wall Street warns of slower road ahead

Instead, it’s a simple matter of math. Stocks don’t have much room to go up after their stellar 2019 performance, analysts say.

Starting points matter. Investments began last year at a low point after recession worries pounded markets in late 2018. However, U.S. stocks will start 2020 at close to historic highs.

Those saving for retirement will likely need to set aside more, because returns won’t be as generous as what we’ve seen over the past decade

Wall Street has been busy trying to rein in expectations. Vanguard forecasts U.S. stocks will return between 3.5 per cent and 5.5 per cent annually over the next decade.

Some major banks have relatively healthy expectations for stocks in 2020 but few, if any, are calling for a repeat of 2019’s surge for the S&P 500, which was at 28.9 per cent as of Tuesday’s close.

Bank of America Merrill Lynch sees the index ending 2020 at 3300, which would be a 2.2 per cent rise. Goldman Sachs is more bullish, with a target of 3400 – still less than a fifth of last year’s gain.

Stocks are much more expensive than a year ago on a host of different measures. One of the most commonly used is how a stock’s price compares to its profit over the preceding year. By that measure, the S&P 500 is trading at 21.1 times its earnings – up from 16.5 at the start of last year and way above its average over the past two decades of 17.7, according to FactSet.

Recession fears

However, low interest rates should help keep this price-earnings valuation high, analysts say.

Even if the worst-case scenario were to come to pass and the U.S. economy were to fall into a recession, many investors say they are not worried about a repeat of the crash of 2007-09, where some stock investors lost more than half their savings.

Investors have remained hesitant to plow their money into stocks, even after this decade-long run, so fund managers say they don’t see grossly overvalued markets, as there were a decade ago.

– Associated Press

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