Goldman Sachs Group Inc. strategists lifted their outlook for the S&P 500 Index as robust earnings growth and low-interest rates fuel optimism that stocks can continue rallying despite record-high levels.
David J. Kostin and his colleagues raised the end-2021 target to 4,700 after the benchmark U.S. index surpassed their earlier prediction of 4,300 about a month ago, according to a note. This implies a return of about 7% from current levels for the remainder of the year and is now the highest forecast along with Oppenheimer & Co’s in the monthly Bloomberg survey of Wall Street strategists from July.
Goldman’s upgrade follows that by Oppenheimer on Aug. 2, when Chief Investment Strategist John Stoltzfus lifted the S&P 500 year-end target to 4,700.
The strong earnings season has been driving U.S. stocks to all-time highs, outweighing concerns about the delta variant, China’s crackdown, and possible scaling back of monetary stimulus. Goldman strategists today boosted their earnings-per-share estimates to $207 from $193 for this year, implying a whopping 45% annual growth.
“The combination of higher-than-expected S&P 500 earnings and lower-than-expected interest rates drive our upgraded price targets,” the Goldman strategists said. “Relative to consensus, we expect stronger revenue growth and more pretax profit margin expansion as firms successfully manage costs and as high-margin tech companies become a larger share of the index.”
Corporates and households will be the largest buyers of U.S. stocks, thanks to surging buybacks and elevated cash holdings, according to Goldman. Investors should balance their portfolios with long-term growth stocks allocations and short-term tactical bets in virus-exposed sectors, according to the note.
The Goldman strategists also increased their end-2022 S&P 500 target to 4,900 from 4,600. This signals a more limited upside for the benchmark, with a return of about 4.3% for the year. The increase in earnings is also expected to slow down next year, with 2% annual EPS growth, they said.
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