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Goldman Sachs: Two factors will keep the stock market stuck right here through the end of the year

Author:
Valentin Lazarov
Investors

Government policy uncertainty and a poor earnings outlook will keep the stock market from rallying any further this year, according to Goldman Sachs.

Low interest rates have boosted U.S. equity valuations this year, bringing the S&P 500 to record highs, and investors are hoping long-term yields dropping even more will lead to even higher stock prices. But the market’s growth will stop just a little bit higher from here, Goldman Sachs said in a note to clients.

“Although our rates strategists forecast the 10-year US Treasury yield will fall to 1.75% by year-end, we expect lingering policy uncertainty and negative revisions to 2020 EPS will limit equity upside,” said Goldman Sachs’ chief U.S. equity strategist David Kostin.

The stock market has been on a tear this year with the S&P 500 up more than 18% since January and closing at an all time high on Tuesday. Kostin said more than 90% of the index’s rally since January has been driven by valuation expansion as the forward price to earnings multiple climbed from 14 times to 17 times. However, unresolved trade tensions between the U.S and China and uncertainty about whether the Federal Reserve will cut interest rates this year will prevent the market from surging any further, said Kostin.

“Combining the tailwind to valuations from falling interest rates and the headwinds from weak growth and high uncertainty, a macro model indicates that the S&P 500 currently trades near fair value,” said Kostin.

Source:CNBC

 

 

International Financial Markets Department

Euro-Finance Ltd.

forex@eurofinance.bg

www.eurofinance.bg 

*This material should not be considered as a recommendation for buying/selling securities.