Wall Street strategists stick by their bullish 2020 market forecasts despite coronavirus fears

The U.S. stock market erased all of its 2020 advance amid growing concerns the fast-spreading coronavirus will lead to a global economic fallout, but a slew of Wall Street strategists believe the fears might be overblown.

Analysts from major financial institutions including Morgan Stanley, JPMorgan, UBS and Credit Suisse are all sticking with their bullish year-end targets on the S&P 500, seeing the Chinese virus as a short-term risk rather than a threat to derail the record-long bull market.

“The fundamental backdrop is supportive, in our view, and the fallout from the outbreak is unlikely to hurt [economic] activity prints over the medium term,” Mislav Matejka, JPMorgan’s head of global and European equity strategy, said in a note on Monday. “Our call remains that one should not expect a US recession ahead of presidential elections.”

Stocks suffered a brutal sell-off Friday, with the S&P 500 and the Dow Jones Industrial Average both turning red for 2020, as the confirmed coronavirus cases rose to at least 10,000 with more than 300 deaths confirmed. Fears were fueled after major U.S. airlines decided to suspend their service to China.

But clients were taking the advice of the strategists on Monday, bidding shares up with the Dow making back more than half of Friday’s rout.

The market strategists believe the current pullback will be short-lived and are betting on an earnings rebound this year. Strong economic fundamentals and an accommodative Federal Reserve will also help offset the global health risk, they believe.

“The virus development should not derail the recovery,” Mike Wilson, Morgan Stanley’s head of U.S. equity strategy, said in a note on Monday. “We continue to think this correction will be contained to 5% in the S&P 500…There is strong support at 3100 on the S&P 500 both technically and from a valuation standpoint.”

Wall Street has an average year-end target of 3,356 on the S&P 500, which represents a 4% gain from Friday’s close of 3,225.52, according to CNBC market strategist survey.

“We still believe that the stock indices will make further all-time highs before the next US recession strikes,” JPMorgan’s Matejka said. The bank sees the S&P 500 climbing to 3,400 in 2020.

Currently the most bullish analyst on Wall Street is Credit Suisse’s Jonathan Golub, who is sticking with his 3,600 year-end S&P 500 forecast despite the coronavirus.

His constructive outlook is based on his predictions that earnings will pick up in 2020, industrial activity will see an improvement and there’s an upside to multiples given an “abundant” return of capital to shareholders.

“Impressively, the median [earnings] growth rate is likely to come in at 6.5%,” Golub, the bank’s head of U.S. equity strategy, said in a note. “That said, good news is largely being overlooked on coronavirus concerns, as investors flock to safer assets.”

Judging from the internals of global markets, investors don’t look more concerned than a month ago, Bhanu Baweja Global Head of Cross Asset Strategy for UBS, pointed out.

“No signs of panic globally – European industrials, weakest parts of credit holding up,” Baweja said in a note. “Investors away from Asia do not yet seem overly concerned about cyclical or risk exposure.”

Travel companies have taken the hardest hits amid the worsening coronavirus fears. United Airlines plunged 15% in the past month, while Wynn Resorts tanked 9% during the same period.

“Given that we have very limited information about the virus, and given that the cycle was inflecting higher before the virus become a worry, this seems a rational stance,” Baweja said.

— CNBC’s Michael Bloom contributed reporting.