The S&P 500 will rally another 11% by mid-2021 as a coronavirus vaccine is rolled out and corporate profits rebound, Goldman Sachs says
- Distribution of a viable coronavirus vaccine and a Biden presidency will create a promising market backdrop in 2021, Goldman Sachs strategists said Wednesday.
- The bank lifted its year-end S&P 500 target to 3,700, implying a 4% rally to record highs into 2021.
- The index will keep climbing another 11% to 4,100 by mid-2021, the bank added.
- Goldman recommends investors hold value stocks best positioned for a vaccine rollout and economic bounce-back, as well as long-term growth names that could benefit from trends that the pandemic accelerated.
- Visit the Business Insider homepage for more stories.
US stocks will leap to all-time highs before the year is out and keep rallying through 2021 thanks to coronavirus vaccine optimism and stronger corporate earnings, Goldman Sachs strategists said Wednesday.
The S&P 500 sits just below the intraday record it set at the start of the week as investors continue to shift cash from growth giants to cyclical stocks. Sentiments were bolstered before trading began on Monday by President-elect Joe Biden's election victory and Pfizer's positive vaccine update.
The latter news is more important to the economy and markets than the potential policies of a Biden administration, strategists led by David Kostin said in a note to clients. The bank expects at least one COVID-19 vaccine candidate to gain US Food and Drug Administration approval and reach a large portion of the country's population in 2021.
When coupled with a divided government countering progressive policy initiatives, Goldman sees 2021 yielding a healthy backdrop for stock investors. All that in mind, Goldman's lifted its year-end S&P 500 target to 3,700, implying a 4% rally into 2021.
The firm also raised its mid-2021 forecast to 4,100, projecting an 11% climb from current levels.
Goldman also boosted its S&P 500 earnings-per-share estimates for 2020 and 2021. The measure of corporate profits will fall 17%to $136 this year, a smaller drop than previously expected. Next year will see earnings rebound by 25% to $175, handily surpassing its previous record of roughly $140.
The strategists are far from the first to praise divided government's effect on markets. JPMorgan raised its early-2021 S&P 500 target to 4,000 on Monday, saying that a Biden administration and Republican Senate forms a "market nirvana." While Biden will most likely back near-term stimulus to keep the nation's economic rebound on track, a split Congress can block Democrats from passing market-averse tax hikes and regulations.
Still, Democrats are set to fight hard to take the Senate in two January run-off elections in Georgia. A Democrat-controlled government could cut into Goldman's projected rally through higher individual and corporate tax rates, the bank said.
"Politics is policy and uncertainty will remain elevated until" the run-offs are called, the team added.
The strategists recommended a "barbell" strategy for trading the upswing. Investors should hold tactical stakes in value stock that would benefit most from economic recovery and vaccine distribution, according to the bank. Positions in long-term secular growth names should go untouched. The bank touted overweight ratings for information tech, health care, industrial, and materials stocks.
The S&P 500 closed at 3,545.53 on Tuesday, up 10% year-to-date.
Now read more markets coverage from Markets Insider and Business Insider:
Spiking coronavirus cases could curb economic growth well into 2021, Dallas Fed President says
US job openings climb slightly in September but miss expectations as labor-market recovery slows