Investors get numerous chances to see longer-term forecasts by analysts, strategists and economists. And each year it is common that the larger brokerage firms issue new price targets for the year ahead. The year 2020 has been a roller-coaster ride of epic proportions, and the “impossible” market and economic recovery from the March panic-selling lows has somehow managed to be seen.

Now that the election is being deemed to be over for the most part, the current expectation is that the global economy and the stock market could continue to surge to new all-time highs. Monday’s COVID-19 vaccine news may have just assured that outcome if the coronavirus can be muted or lessened handily.

Goldman Sachs Group Inc. (NYSE: GS) is one of the top firms for capturing a lot of attention when it makes big analyst upgrades, forecasts and market calls. After all, it still has the “Golden Slacks” nickname and its core operations cater almost exclusively to wealthy private investors and to institutional investors.

Goldman Sachs has now forecast that the S&P 500 Index could rise from more than 3,550 today all the way up to 4,300 by the end of 2021.

This means that 2021 could see a gain of another 20% from here if Goldman Sachs is proven to be correct, and that’s after a 9% gain since the last day of October. If Kostin’s new forecast of 3,700 for the end of 2020 proves true, then that would represent just about 16.2% returns in 2021 as a whole.

David Kostin is the chief strategist for U.S. equities at Goldman Sachs. His take is that the economic recovery still has momentum even though a second round of government stimulus has yet to occur. There is a general consensus that some additional stimulus is coming, with the “when” and “how much” still being up in the air.

There are some caveats to the call of course. One assumption for the v-shaped recovery to continue is that less drastic policy changes from Congress will be present in 2021. Another caveat is that there will be at least one vaccine being widely available in the United States (and elsewhere).

One additional theme is that Kostin expects valuations to remain firm in stocks. One driver is that ultra low interest rates are not even keeping up with inflation, and the risk-premium that investors have demanded historically is lower in the nearly zero-rate environment. If the money on the sidelines goes to stocks rather than bonds, that drives the market higher.

Earnings on average held up better than expected during the earnings season tracking the third quarter of 2020. The 8% drop from a year ago was expected to be even worse, and the stock market theoretically tries to act as a live-money bet about where things will be in the next few quarters rather than just today. If the evaluation was just about today, the markets would be far lower.

Kostin has raised his earnings per share forecast for the S&P 500 up to $175 from $170. And for determining the year-end 2021 target of 4,300 in the future discounting, Kostin’s new forecast for 2020 is calling for $195 per share versus a prior target of $188 per share.

Another issue that will come into play after 2021 is that longer-term GDP is expected to see slower growth after the firm’s most recent macro-outlook for 2021. Any discounting of growth into future earnings may be harder to expect if those projections pan out, but that still led Kostin to a potential 4,600 level for the S&P 500 in 2022..

The Federal Reserve’s pledge to keep interest rates lower for longer will also act as a backstop and give confidence to investors looking forward. While the yield on the S&P 500 ETF Trust (NYSEArca: SPY) is only 1.74%, the yield on the SPDR Portfolio S&P 500 High Dividend ETF (NYSEArca: SPYD) is closer to 5.5%. And for the so-called “dividend aristocrats” with 25 consecutive years or more of dividend hikes, the ProShares S&P 500 Dividend Aristocrats ETF (NYSEArca: NOBL) yield is closer to 2.3%.

Kostin’s view is that traditional cyclical stocks and value stocks are likely to lead the way higher in 2021. If there are COVID-19 vaccines and/or treatments, then an economic return to normalcy would likely favor the beaten down sectors.

While the major indexes are basically back at or close to their highs, the SPDR Portfolio S&P 500 Value ETF (NYSEArca: SPYV) is still down about 7.2% form its highs. That ETF tracks the benchmark for large-cap value.

And while this was not part of the strategic call for the indexes, Goldman Sachs also has 5 clean and renewable energy stocks to buy with big implied upside.

Treasuries offer paltry yields of just 0.95% on the 10-year and about 1.75% on the 30-year. Rising interest rates could pose a competitive challenge to stocks if the safety trade starts to look better than the risk-trade of equities. That said, the Federal Reserve’s new target of getting inflation back above 2% still implies negative real rates of return for bonds at the current time if Jerome Powell and his crew can hit the target.

Back at the start of 2020, our own model was calling for the Dow to rise up to 30,650 by year-end. That seemed to be an impossibility during the plunge-depth selling in March and even as the markets continued to recover on the back of stimulus packages in April. By summer, that target didn’t seem so ridiculous. Now it’s just about 1,100 points, or about 3.7%, away.

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