Big Banks Turn Bearish on Stock Market After Years of Optimism
If you are bullish on the stock market going into 2019, be very careful. We could be seeing a stock market crash-like scenario play out in the new year.
It can’t be stressed enough that capital preservation is very important, now more than ever in the last five years.
Why be so bearish on the stock market? Because even the big banks are turning bearish on the stock market. This list continues to get bigger as we approach the end of 2018.
To give you some perspective…
Mike Wilson, chief equity strategist at Morgan Stanley (NYSE:MS), wrote, “After a roller coaster ride in 2018 driven by tighter financial conditions and peaking growth, we expect another range-bound year driven by disappointing earnings and a Fed that pauses.” (Source: “Morgan Stanley strategist who nailed the sell-off sees stocks struggling again next year,” CNBC, November 26, 2018.)
Chief equity strategist David Kostin and his team at Goldman Sachs Group Inc (NYSE:GS) wrote in a note, “For equity investors, risk is high and the margin of safety is low because stock valuations are elevated compared with history.” (Source: “Goldman Sachs on 2019: Raise cash, get defensive and look out below if more tariffs happen,” CNBC, November 20, 2018.)
Goldman Sachs also added something we haven’t heard in many years from big investment houses: “Perhaps more important, the prospective risk-adjusted return to equities will be less than one-half the long-term average and cash will represent a competitive asset class to stocks for the first time in many years.”
Michael Hartnett, chief investment strategist at Bank of America Corp (NYSE:BAC), said, “We remain bearish, as investor positioning does not yet signal ‘The Big Low’ in asset markets.” (Source: “Bank of America says the ‘Big Low’ for stocks isn’t here yet and the selling will continue,” CNBC, November 13, 2018.)
What’s Next for the Stock Market? Dismal Outlook Returns
Dear reader, know that this is the first time in a while we have seen big investment houses have such a bearish take on the stock market. In the past few years, we saw nothing but optimism and out-of-this-world outlooks for the stock market from them.
Am I surprised by all they are saying now? Not at all. I have been talking about all this for a while now. Long-term readers of Lombardi Letter will attest to this. I have long called for poor stock market performance in 2018 and beyond.
What’s important to keep in mind here is that these banks have a large institutional following, and they themselves manage a lot of money.
If their bearishness persists, we could see money managers ditching stocks in 2019. This could be really bad and it could result in a stock market crash-like scenario in no time.
I will be bold here and say this: With banks turning bearish, what we saw in October and November on key stock indices may just be a teaser of what’s to come in 2019.
I truly believe the first few months of 2019 will be very critical to watch. The stock market may disappoint a lot of investors. Be very careful.