U.S. Stocks Won't Touch 2018 Highs Next Year, Cantor Says

(Bloomberg) -- Weakness in credit markets means the S&P 500 Index won’t revisit this year’s highs during 2019, Cantor Fitzgerald says.

The behavior of markets in the waning weeks of 2018 is leading to a much more bearish view for next year, Cantor’s Peter Cecchini wrote in a note Thursday, citing tighter monetary-policy conditions as a key reason. The European Central Bank’s announcement that it’s ending quantitative easing adds to his conviction in the call, and “despite the dovishness accompanying the move, we feel that this continues to erode support for risk assets.”

“Credit markets have thus far held up relatively well in this market correction,” Cecchini said. “The widening in spreads, however, suggests that credit markets are beginning to price in higher default probabilities in 2019.”

U.S. Stocks Won't Touch 2018 Highs Next Year, Cantor Says

The S&P 500 hit a record closing high of 2,930.75 on Sept. 20, having more than quadrupled since its Global Financial Crisis lows in March 2009. Since then, however, it has fallen about 10 percent on concerns about global trade tensions, the Federal Reserve’s rate-hike path and the worldwide economy, among other things.

U.S. Stocks Won't Touch 2018 Highs Next Year, Cantor Says

Cecchini still expects a Santa Claus rally, maintaining his year-end target around 2,800 that would be a gain of about 5 percent from current levels. He noted that sentiment as measured by the American Association of Individual Investors is at extreme lows, and suggested buying December-expiry put options on the VIX volatility index to bet on short-term upside potential.

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