JP Morgan raises stock outlook, sees China trade deal and an easy Fed

J.P. Morgan on Monday raised its 2019 S&P 500 forecast and told clients that the market is set for even more gains in the second half as the Federal Reserve pivots toward easier monetary policy and the Trump administration looks to end an entrenched trade dispute with China.

The brokerage raised its year-end S&P 500 price target to 3,200 from 3,000, representing 6.2% upside from Friday’s close and implying a 27% surge for the index over 2019, which finished the prior year at 2,506.85. The S&P 500 notched an all-time and closing high on Friday, finishing the session at 3,013.77.

We are “raising our S&P 500 12-month price target to 3,200 as our upside case for equities is increasingly in play with Fed and Trump easing on policy while investor positioning/sentiment remains low,” chief U.S. equity strategist Dubravko Lakos-Bujas wrote in a note.

Central to J.P Morgan’s renewed optimism around stocks is what the brokerage believes is the increasing likelihood that central banks around the world will relax monetary policy in the second half of the year. 

Six developed market and 13 emerging market central banks are expected to ease their policies before the end of the year, Lakos-Bujas added, suggesting lowering borrowing costs for corporations.

The higher S&P 500 target also assumes a partial trade deal between Washington and Beijing before year’s end. Both the U.S. and China have slapped tariffs on billions of dollars’ worth of imports as the two sides work to end a protracted trade dispute.

The bilateral spat took a turn for the worse in May, when President Donald Trump threatened and followed through on threats to ramp up U.S. tariffs on Chinese imports, catching investors by surprise and sending equities tumbling. Those hostilities appeared to ease after Trump and China President Xi Jinping met at a Group of 20 summit in Japan.