Goldman Lifts Year-End Price Target For S&P 500, Sees Big Gains In 2020

In bullish stock market news, Goldman Sachs raised its 2019 year-end price target for the S&P 500 index and said there would be a 3 percent price appreciation for the stocks.

However, it expressed a bearish outlook on earnings for the index players because of shrinking margins and headwinds emanating from slowing economic activity.

Accordingly, Goldman’s outlook on S&P 500 EPS estimates for 2019 is $6 down to $167 citing the slowdown in economic growth, falling oil prices, and shrinking margins.

Goldman suggests an average of 3 percent appreciation until year-end, which will take the full-year gain of the index to 24 percent and it sees a 10 percent increase in 2020.

“Since January, we have noted that 2019 EPS growth would likely equal 3 percent and 6 percent depending on the trajectory of key macro variables,” chief U.S. equity strategist David Kostin wrote.

However, halfway through the year, economic growth has been below-trend, oil prices range-bound and persisting tariff uncertainty.

“We, therefore, expect that 2019 EPS growth will equal 3 percent, the low end of the range,” Kostin added.

Of late, technology companies have been the biggest gainers in the index. The top companies in the index include Apple, Microsoft, Amazon, Facebook, Berkshire Hathaway, JP Morgan Chase, Exxon Mobil, Alphabet, and Johnson & Johnson.

In real terms, the Goldman forecast implies that S&P will breach its intraday record of 3,027.98 set on July 26 Friday as another boost from possible rate cut is expected shortly.

Equity markets rally will continue in 2020

Despite the depletion in earnings, Goldman analysts see positives such as the sustained rise in stock markets and the 2020 year-end price target surging 10 percent than its H2 2019 target.

“The dovish Fed pivot has driven the equity market rally in 2019, and we expect low-interest rates will continue to support above-average valuations going forward,” David Kostin noted.

Tips for investors

The Goldman analysts also offered investor tips and urged investors to be proactive in choosing cyclical equities such as consumer goods stocks expecting that “easy financial conditions would lift the U.S. economic growth from its depressed pace of 1 percent in June.”

On health-care stocks, it said global policy changes and the 2020 U.S. election make will make them vulnerable to political risks.

In the sector, Goldman analysts advised investors to look for providers and services rather than chasing pharmaceuticals.

Bullish outlook on US growth and the index

The bullish outlook for 2020 markets is premised on Goldman’s outlook that the U.S. and other global economies will rebound by 2020.

The GDP growth in the real U.S. may rise from 1.7 percent in the third quarter of 2019 to 2.5 percent in the second quarter of 2020.