Investing

Goldman Sachs Is Now the S&P 500’s Biggest Bull

Goldman Sachs, known around Wall Street as the gold standard for analysis and strategy, just became a lot more bullish on where American equities could go from here. After a fairly positive earnings season (which is not done yet), the investment house has lifted its targets for the S&P 500.

Part of the firm’s optimism is due to earnings season, but also recent Fed speak on lower interest rates for longer has fueled optimism. Federal Reserve Chair Jerome Powell, like former Fed Chair and current Secretary of the Treasury, Janet Yellen, has signaled that interest rates will remain low for the time being, allowing for more lending and growth. While this does fly in the face of inflation concerns, it seems to be a positive for Wall Street.

Goldman Sachs has just lifted its 2021 year-end target for the S&P 500 to 4,700 from the 4,300 that was issued about a month ago. This new target implies about 7% upside from current levels. This ties Oppenheimer’s rating (August 2) for the most bullish forecast on Wall Street. Goldman Sachs also boosted its S&P 500 earnings estimates for the year to $207 from $193, implying about 45% annual growth.

The obvious factor that played into this was the strong earnings season, which has driven stocks to all-time highs. In a sense, this is outweighing concerns about a resurgence of COVID-19 cases with the Delta variant. Goldman Sachs strategists commented:

The combination of higher-than-expected S&P 500 earnings and lower-than-expected interest rates drive our upgraded price targets. Relative to consensus we expect stronger revenue growth and more pretax profit margin expansion as firms successfully manage costs and as high-margin tech companies become a larger share of the index.

What Goldman Sachs is pointing out is that the tech sector will invariably benefit from lower interest rates. With cheap money on the table, more tech companies will be able to borrow and grow rapidly.

Looking even farther out, Goldman Sachs increased the 2022 year-end target for the S&P 500 to 4,900 from 4,600, which signals a more limited upside. Earnings are expected to slow in this time, as well only growing about 2%.