Undeterred by the coronavirus outbreak that continues to wreak havoc on the global economy, top investment bank Goldman Sachs (NYSE: GS) today raised its year-end target level on the S&P 500. Goldman now believes the benchmark stock index (S&P 500) will hit 3,600 by the New Year, a substantial increase from the company’s previous estimate of 3,000. That 3,600 would represent growth of 6% over the current level.
The team of forecasters behind the new prognostication believes that investors will consider equities to be undervalued given a lower-than-expected risk premium.
In a research note, the Goldman team wrote that “[c]hanges in the [equity risk premium] are driven by many factors, including the strength of the economy today, the expected state of the economy going forward, and the confidence investors have in that forward path.”
Goldman’s analysts are anticipating that a coronavirus vaccine will be developed and approved by the end of this year, with wide distribution to occur shortly thereafter. Should that occur, Goldman’s estimate might prove to be modest; the potential impact of an effective vaccine could be profound, lifting stock indexes very much higher.
The stock market will begin the week from a height that is equal to where it stood before the pandemic. Peering ahead, Goldman Sachs strategists say there is an additional 7% in gains ahead this year for the S&P 500 index. In a weekend note, David Kostin and his colleagues raised their year-end 2020 target for the S&P 500 index to 3,600 from 3,000.
“Six months ago, on Feb. 19, the S&P 500 Index reached an all-time high of 3,386,” the Goldman analysts say. “Then, the coronavirus hit. The world stopped. Economies froze.”
But after a one-third drop in the stock market—and 750,000 global deaths from Covid-19—the S&P has fully recovered from its loss. There are 500 stocks in the index, but more than a quarter of its 51% rally was powered by just five stocks: Apple (ticker: AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL) and Facebook (FB).
Other drivers of the stock market recovery have been an outpouring of government spending and a Federal Reserve cut in interest rates to near zero.
Treasury rates will rise by year-end to 1.1%, according to Goldman economists, and to 1.4% by mid-2021. Yet corporate earnings will rise, too, and by more than generally expected. The Wall Street consensus for the S&P’s earnings in 2021 is $165 a share, Goldman says. But the economists forecast a 30% rise next year to $170, followed by an 11% rise in 2022. Driving those increases will be higher sales and profit margins in technology and health care.
On top of Goldman’s higher earnings expectations, the firm believes investors will pay a higher multiple for stocks. Before the pandemic, the S&P traded at 17 times expected 2021 earnings. Now, says Goldman, it goes for 20 times. By year-end, the analysts say the index will be trading at 21 times.
That is why they raised their year-end target for the S&P 500 to 3600.
The November election poses some risk to that target, Goldman warns. It says that prediction markets anticipate that Democrats will emerge in control of Washington, DC. That could result in higher corporate taxes. Other policy changes in fiscal spending and trade, however, could offset that damper.
And the biggest expected boost to the economy and the market, says Goldman, will be a vaccine that ends the pandemic. At least one vaccine will be approved by the end of 2020, with wide distribution by mid-2021.
All information on this website is of a general nature. The information is not adapted to conditions that are specific to your person or entity. The information provided can not be considered as personal, professional or legal advice or investment advice to the user.
This website and all information is intended for educational purposes only and does not give financial advice. Signal Factory is not a service to provide legal and financial advice; any information provided here is only the personal opinion of the author (not advice or financial advice in any sense, and in the sense of any act, ordinance or law of any country) and must not be used for financial activities. Signal Factory does not offer, operate or provide financial, brokerage, commercial or investment services and is not a financial advisor. Rather, Signal Factory is an educational site and a platform for exchanging Forex information. Whenever information is disclosed, whether express or implied, about profit or revenue, it is not a guarantee. No method or trading system ensures that it will generate a profit, so always remember that trade can lead to a loss. Trading responsibility, whether resulting in profits or losses, is yours and you must agree not to hold Signal Factory or other information providers that are responsible in any way whatsoever. The use of the system means that the user accepts Disclaimer and Terms of Use.
Signal Factory is not represented as a registered investment consultant or brokerage dealer nor offers to buy or sell any of the financial instruments mentioned in the service offered.
While Signal Factory believes that the content provided is accurate, there are no explicit or implied warranties of accuracy. The information provided is believed to be reliable; Signal Factory does not guarantee the accuracy or completeness of the information provided. Third parties refer to Signal Factory to provide technology and information if a third party fails, and then there is a risk that the information may be delayed or not delivered at all.
All information and comments contained on this website, including but not limited to, opinions, analyzes, news, prices, research, and general, do not constitute investment advice or an invitation to buy or sell any type of instrument. Signal Factory assumes no responsibility for any loss or damage that may result, directly or indirectly, from the use or dependence on such information.
All information contained on this web site is a personal opinion or belief of the author. None of these data is a recommendation or financial advice in any sense, also within the meaning of any commercial act or law. Writers, publishers and affiliates of Signal Factory are not responsible for your trading in any way.
The information and opinions contained in the site are provided for information only and for educational reasons, should never be considered as direct or indirect advice to open a trading account and / or invest money in Forex trading with any Forex company . Signal Factory assumes no responsibility for any decisions taken by the user to create a merchant account with any of the brokers listed on this website. Anyone who decides to set up a merchant account or use the services, free of charge or paid, to any of the Forex companies mentioned on this website, bears full responsibility for their actions.
Any institution that offers a service and is listed on this website, including forex brokers, financial companies and other institutions, is present only for informational purposes. All ratings, ratings, banners, reviews, or other information found for any of the above-mentioned institutions are provided in a strictly objective manner and according to the best possible reflection of the materials on the official website of the company.
Forex trading is potentially high risk and may not be suitable for all investors. The high level of leverage can work both for and against merchants. Before each Forex investment, you should carefully consider your goals, past experience and risk level. The opinions and data contained on this site should not be considered as suggestions or advice for the sale or purchase of currency or other instruments. Past results do not show or guarantee future results.
Neither Signal Factory nor its affiliates ensure the accuracy of the content provided on this Site. You explicitly agree that viewing, visiting or using this website is at your own risk.
