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FORTUNE.COM// FEB.1.
MARKETS
Don’t Fall for Wall
Street’s Optimism
It would take a true fluke to deliver the double-
digit gains predicted for 2019.By Shawn Tully
AFTER A BRUTAL DECEMBER,when trade
turmoil and signs of slowing growth
sent global stock markets into a tailspin, America’s
investment institutions did the sensible thing:
They reduced their 2019 stock-price targets for
the S&P 500.
But they didn’t reduce them by much. The aver-
age gain expected among eight big banks and bro-
kerages—including JPMorgan Chase and Goldman
Sachs—was 16%, or 18% if you include dividends.
Such a gain would reflect not just a good year but a
great one. It’s almost double the historical average.
Wall Street forecasts tend to skew high—but this
crop of forecasts looks particularly Pollyanna-ish.
Stocks as measured by their price-to-earnings ra-
tios are astoundingly expensive, at levels exceeded
only during the bubbles of 1929 and 2000; that’s
usually a predictor of disappointment to come.
What’s more, forecasts for 2019 profit growth
have been falling steadily—that’s one reason stocks
tumbled last year. And at least in theory, to justify a
16% rise in share prices, companies in the S&P 500
would have to col-
lectively boost their
earnings per share
(EPS) by about the
same amount.
Is that feasible?
Corporate America’s
passion for stock
buybacks helps, and
companies in the
Fortune500 have
already announced
plans to buy back
$1 trillion in shares.
But here’s the
thing: That would
increase EPS only by
about 3%. The re-
maining 13% would
have to be driven by
other factors, such as
greater productivity.
With labor costs
and interest rates
rising, and the boost
from the 2017 corpo-
rate tax cut waning,
those forecasts seem
far more like fantasy
than reality.CASH
IS BACK
THE TURMOIL in the
stock market, along
with rising interest
rates, has prompted
institutional and
retail investors alike
to shift more of their
investments into
good old cash, send-
ing the total assets
inside money-market
funds to their highest
levels since early
2010.
Assets in money-
market funds
surpassed $3 trillion
sometime in Decem-
ber, according to the
Investment Company
Institute (ICI), and
reached $3.07 trillion
by the first week of
January. That’s the
highest level since
March 2010.
The increase
in money-market
funds was accom-
panied by major out-
flows in exchange-
traded funds,
especially equity and
bond ETFs. The ICI
said that between
Dec. 5 and Jan. 2,
an estimated
$60.5 billion flowed
out of stock ETFs
while another
$48 billion flowed
out of bond ETFs.
—KEVIN KELLEHERROADRUNNER:^WARNERBROS./COURTESY^ OF^ EVERETTCOLLECTION;^MONEY:^EUGENESERGEEV—GETTY^ IMAGES