The S&P 500 is flirting with its record high, we see the index as fairly but fully valued for now. If a new record is set soon, we think it only slightly exceeds 2018's September 2930 high. The sharp rally year-to-date is all from price-to-earnings (PE) expansion. Bottom-up consensus 2019 expectation S&P earnings per share (EPS) fell from $175 at year start to $168 now and the PE on this rose from 14.3 at year start to 17.3 now. First quarter S&P EPS is likely flat vs. last year assuming hearty beats. EPS growth should resume in 2Q albeit at a very slow pace. We expect the S&P to be range-bound (2750-2950) this summer through September until a bipartisan U.S. fiscal 2020 deal is struck this autumn and Britain finally legislates an orderly path for exiting the European Union (EU). When these deals pass and if the U.S. economy appears to be trending towards 2% gross-domestic-product (GDP) growth in 2019's second half and S&P EPS growth returns to a solid 5%+ trend, which we think likely but are not yet certain about, we would expect the S&P to rally to about 3000 by yearend or January. We fine tune our 2019E S&P EPS estimate to $169 from $170 with more details inside.
We think a 5%+ S&P price decline is unlikely near-term, but we trim our cyclical risk (beta) until the S&P is at or below the mid-point of the fair range we see for summer. We cut Equity allocation and raise Fixed Income and Alternatives. In equities we trim U.S., developed market (DM) and emerging market (EM). Within Fixed Income we trim high yield (HY) and add to short-duration. In Alternatives, we think real estate and infrastructure will perform well if the climb in 10yr yields is modest in late 2019 despite indications of a recession still being years away.
Despite the trim to our overall equity allocation, we maintain a large over-weight (OW) to Emerging Markets. We are equal to the slightest bit over-weight U.S. equities vs. our long-term norm and maintain a preference for large over small cap U.S. equities. We are moderately under-weight foreign developed equity markets. Our U.S. sector strategy and tilt toward EM Asia keeps our preference for Growth over Value. But our tilt to Growth is reduced a bit by lowering S&P Tech to equal-weight.
We believe that Growth will outperform Value for the rest of this long-lasting cycle. But for this summer, we see some catch-up potential for Value from big Banks, which we see as well deserved and retainable. There could be some catch-up at Industrials, Materials and Energy, upon a China trade deal with positive surprises and a further climb in oil prices. But we’re skeptical about how much or retainable outperformance from Energy and Materials might be and these sectors remain at more risk to downside scenarios. We think oil prices will be challenged despite healthy EM demand to climb further the rest of this cycle given ample potential supply and the stability in China's growth comes with a shift from investment activity and construction related materials demand to consumer goods and services consumption.
We believe the S&P is reaching the top of its spring rally, but we see further upside at big U.S. banks as chances of a 2019 federal-funds-rate cut fade away and the yield curve returns to a slight positive slope. We expect Comprehensive Capital Analysis and Review (CCAR) to confirm strong balance sheets at big banks and permit double-digit dividend hikes in the coming months. We maintain 400bp overweight (OW) on Financials and 300 basis points (bp) OW on Communications within the U.S. equity universe. We know that pricing power is pressured at many Communications companies, but we're attracted to the giant advertising-revenue capturing nets as we see their internet presence and services firmly rooted in consumers' lives. Elsewhere, we tilt to content vs. distribution on vast global selling opportunities. We reduce Technology and Health Care to equal-weight (EW) and raise Industrials, Consumer Staples, Real Estate and Utilities to EW. We stay under-weight (UW) Energy by 300bp and Consumer Discretionary and Materials by 200bp each.
In addition to our normalized earnings and fair intrinsic value estimates for all S&P sectors, we consider macro-factor exposures of our sector tilts. Our sector strategy is neutral beta vs. S&P, but still Growth tilted; what now stands out the most is that we prefer domestic exposure and service providers over foreign exposure and commodity producers and manufacturers. We see a firm dollar, tame inflation and slower but decent capital-expenditure (capex) growth that is more focused on boosting productivity than capacity. Cutting OWs on Tech and Health Care lowered our research and development (R&D) exposure. We're attracted to such intangible assets and will look for an opportunistic return to OW.