Goldman Sachs Sees Big 2014 Stock Gains, and Big Drop, in the S&P 500

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Goldman Sachs has released its themes to watch in 2014, but what stood out handily is the firm’s call on the stock market. The firm is reiterating a 2014 year-end target of 1,900 on the S&P 500 Index. This translates to an expected gain of 6%.

What investors need to consider is that some media outlets are running this as a call for a 10% stock market drop. While that is true, it is ultimately calling for larger gains for those long-term investors. We would even welcome a 10% correction, as long as it was due to valuation adjustments rather than due to systemic issues.

What investors should take away from the note is that this is not a call for a straight-shot rally. The S&P 500 index is up a whopping 26% so far in 2013, and the market has exceeded almost all strategists’ price targets that were set up early in 2013 or in late 2012.

The warning from Goldman Sachs is that the S&P 500 Index could fall by 6% over the next three months and rise by up to 11% in the next year. This would offer downside price targets of 1,700 as the first stop and 1,600 as the second stop. We have seen that the strategists even gave a two-in-three chance for a drop of 10% from the peak during 2014.

Before you panic about news reports elsewhere trying to scare you about a measly 10% drop, consider two things: 1) where we have come from and 2) where we likely are going.

  1. The S&P 500 bottomed out at about 666 in the peak of the panic in 2009, which means the market has rallied about 167% or so since then.
  2. Goldman Sachs is expecting the S&P 500 to hit 2,100 by the end of 2015 and 2,200 by the end of 2016.

Do you want even more raging bull market reassurance? Remember that one strategist gave us a longer-term view that the S&P 500 would rise to as much as 2,584. If you want the flip side of the coin, the gloomy and grumpy Marc Faber predicted a 1987 style crash back in August. That has yet to materialize.

We will try to update this article with more detail.

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