U.S. stocks, as measured by the S&P 500 Index, already have soared by 25.5% so far in 2019. But the bull run is not over. They're likely to rise by an additional 9% between now and the end of 2020, driven by five major forces, according to Sam Stovall1 , the chief investment strategist at CFRA Research. If Stovall's prediction is correct, that would represent a stunning 46% gain from the low in Dec. 2018, when worries about an impending recession were rampant.

The five forces that Stovall points to include: the spread in performance between the best and worst sectors in the broader S&P 1500 has been below historical averages; the Federal Reserve is likely to continue its current program of monetary easing; consensus EPS growth of 8.2% for the S&P 500 in 2020; the likelihood of a Phase One U.S.-China trade deal; and presidential election years historically are highly favorable for stocks, as well as periods following points when the dividend yield on the S&P 500 exceeds the yield on the 10-Year U.S. Treasury Note.


  • CFRA strategist Sam Stovall sees rising U.S. stocks in 2020.
  • Positives include economic and profit growth, plus a trade deal.
  • Other positives: presidential election years and Fed rate cutting.

Significance For Investors

Stovall points out that, since World War II, the S&P 500 has advanced in 78% of presidential election years, recording an average advance of 6.8%. During the six years in which a first-term Republican president was seeking re-election, the S&P 500 was up 100% of the time, with an average gain of 6.6%.

Based on data starting in 1953, whenever the dividend yield on the S&P 500 was greater than the yield on the 10-Year T-Note, the S&P 500 rose 84% of the time during the following 12 months, posting an average gain of 18%. The T-Note opened trading on Dec. 9 yielding 1.82%, while the S&P 500 yielded 1.85%.

For the year-to-date through Nov. 30, energy is the only one of the 11 sectors in the S&P 1500 to be down, and the performance spread between the best (information technology, up 41.4%) and the worst (energy, down 0.5%) is narrower than usual. "Like a coiled spring ready to jump, the year-ahead gain following below-average calendar-year spreads since 1990 averaged more than 13% and recorded a price increase 80% of the time," Stovall observes.

Regarding the likely impact of monetary easing on stocks, Stovall reports that there have been 16 prior cycles of rate cutting by the Fed since World War II. In the 18 months following the initial rate cut, the S&P 500 has advanced 75% of the time, with an average gain of 18.6%.

Turning to earnings projections, strategist Mike Wilson of Morgan Stanley has been a leading bear, putting a high likelihood on the possibility of no growth in 2020, and warning that stock prices "have become detached from fundamentals," But Stovall disagrees. "There is an old Wall Street adage that 'prices lead fundamentals,' and the answer is likely found in the expectations for some sort of trade truce. Until the details of that deal are revealed, however, along with the prospects for continued conversations, EPS estimates are likely to undershoot potential," Stovall writes.

Looking Ahead

CFRA's economists see "sustainable global growth" ahead, with no evidence that a U.S. recession is imminent. As a result, Stovall says, "we recommend a neutral allocation to equities and fixed income. Finally, we currently lean toward the cyclical sectors and favor higher-quality equities that offer growth at a reasonable price."

For its part, Goldman Sachs sees "mixed economic data and renewed U.S.-China trade uncertainty." Nonetheless, they have a more upbeat view on corporate profits than recent U.S. government data suggests, and project 6% EPS growth for the S&P 500 in 2020. Goldman's baseline forecast is that the S&P 500 will reach 3,250 by the end of 2019, and trade around that level for most of 2020, before reaching 3,400 after the elections resolve uncertainty. CFRA projects 3,200 by year-end 2019, rising to 3,435 by the close of 2020.

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