(Bloomberg) -- With the S&P 500 up 17 percent just four months into the year, investors could be forgiven for thinking about taking profits ahead of the usual summer doldrums. Not so fast, says Societe Generale.
“In our view, 2019 will be different,” Societe Generale strategists including Sophie Huynh and Alain Bokobza, the firm’s head of global asset allocation, wrote in a note Tuesday titled “Why ‘Sell in May and go away’ won’t work this year.”
Their argument boils down to earnings downgrades. While it’s true that market performance is typically worse between May and September than at the beginning and end of the year, the pattern generally coincides with profit forecast cuts. Earnings estimates are almost always too lofty at a year’s start, and the downgrades typically cluster in June and October, according to the strategists.
But given that profit forecasts were furiously downgraded at the start of 2019, and now estimates are beginning to be revised higher as benchmarks reach records, further cuts in the warmer months are probably unlikely.
“2019 will be different as we started the year with already quite pessimistic expectations,” the strategists wrote. “Going forward, we should see U.S. earnings growth bottoming out, as we think it is too early for an earnings recession cycle.”
The firm sees room for the S&P 500 to rise to 3,000 in the near term -- a 2 percent gain from current levels.
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