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Wall Street strategists have a hard time agreeing on where the economy and the stock market are heading in late 2019 and into 2020. Some firms have sounded the alarms that a recession may be coming as soon as 2020, but Goldman Sachs has issued a higher target for the S&P for 2019 and it sees double-digit gains coming in 2020 as well. What’s amazing about the call is that it is even happening while the firm ticked the S&P 500’s earnings per share lower in the call.

Goldman Sachs raised its official 2019 year-end price target for the S&P 500 to 3,100 from 3,000 on Tuesday, but the firm also lowered its 2019 earnings per share estimate for the S&P 500 by $6, as it sees the lower-end of its 3% to 6% earnings growth range being more likely.

The cut to that earnings estimate for the S&P 500 cited weakness in the economy and in its outlook for overall margins. Overall economic growth has been below trend, and Goldman Sachs pointed out that oil prices have been range-bound and tariff uncertainty has not gone away. The firm expects that, after the Federal Reserve lowers interest rates, those rates will continue to support above-average valuations ahead.

The new Goldman Sachs 3,100 price target for the S&P 500 by the end of 2019 would imply close to a 24% gain for the year. The firm also has set an initial year-end price target for 2020 of 3,400. If so, that implies a market gain of almost 10%.

While the call is for higher index levels, Goldman Sachs is advising its clients to add selective exposure to cyclical equities (like transportation stocks) as easier financial conditions should boost domestic economic growth from the lower pace seen during June. On the other side of the coin, health care stocks are singled out as highly vulnerable to political risk around pricing and coverage as Medicare for All would crush drug prices. Goldman Sachs also sees margins recovering for semiconductors in 2020 after a drop in 2019, but the rate of margin expansion is lower than what many other firms are expecting.

What is important to consider is that the S&P 500 already has returned about 20% year to date in 2019, and that is with all the bad news that has been seen. Still, the S&P 500 recently traded at 3,020 and has more than surprised Wall Street strategist target prices that were made at the end of 2018 when the stock market was in free-fall mode during the fourth quarter.

As for the higher 2020 S&P target price, supporting the call is an expectation that global growth will rebound modestly in 2020, with the Goldman Sachs economists expecting real U.S. gross domestic product growth to rise from 1.7% in the third quarter of 2019 back up to 2.5% in the second quarter of 2020. The firm also points out that every 100 basis point increase in real U.S. GDP growth will add roughly $5 in earnings per share to the S&P 500.

The S&P 500 closed down 4.89 at 3,020.97 on Monday, July 29, 2019, and its 52-week range is 2,346.58 to 3,027.98. The yield on the 10-year Treasury was last seen at close to 2.10%, and the yield on the 30-year was at 2.60%. The median dividend of all S&P 500 members was at 1.86%, while the median dividend of the S&P 500’s 400-plus dividend-paying stocks was at about 2.20%.