Goldman's Kostin said the bank’s modeling, which incorporates the economy, earnings, valuation and money flow, implies no room for further upside. — Bloomberg
NEW YORK: The S&P 500 Index is unlikely to deliver any more gains from now through the end of the year, according to Goldman Sachs Group Inc’s David Kostin.
The firm’s chief US equity strategist reiterated his 2024 price target on the benchmark of 5,200 in an interview with Bloomberg Television, while noting he saw “roughly a flat return from now until the end of the year”.
That forecast is just below where the US stock benchmark is currently trading after a 10% advance since January.
Kostin said the bank’s modeling, which incorporates the economy, earnings, valuation and money flow, implies no room for further upside.
Goldman’s economists saw real US gross domestic product growth this year of around 3% and the bank’s equity strategists projected earnings growth of 8% in 2024, and highlighted that valuations are already historically high.
“The probability of a multiple expansion, while possible, is less probable,” Kostin said.
US stocks climbed on Tuesday, with the S&P 500 edging in on another record high after recouping the bulk of its losses from a slump in April.
Investors shrugged off a stronger-than-expected producer price index report as they await key consumer inflation data for clues on whether or not the Federal Reserve will be able to reduce interest rates later this year.
One upside risk to Kostin’s outlook is if officials dial back interest rates more aggressively than markets currently anticipate, he said, and emphasised that’s not on the cards at this point.
“That’s not our base case,” Kostin said. “Our base case is that the market will trade at around this level of multiple or, in fact, an even lower multiple as we come towards the end of the year,” Kostin said.
Meanwhile, in another Bloomberg report, Goldman Sachs Group Inc president John Waldron said the US government should not be lulled into thinking that there’s insatiable appetite for its debt.
“There’s no evidence we cannot just keep going, but those of us who have been watching this for a long time are worried this is an unsustainable pace,” Waldron said in a Bloomberg Television interview.
“We need to show more discipline in the system should the United States continue to be a great place to invest.”
The Wall Street giant’s long-time No. 2 reiterated one of his chief concerns, that complacency around indiscriminate borrowing relies on the assumption that the United States will continue to enjoy the reserve currency status, which may not always be the case.
While there is a need to stimulate some parts of the economy from a financial standpoint, Republicans and Democrats need to find a way to create more discipline in financial spending, Waldron said.
He has previously cautioned that the confluence of a political crisis and mounting leverage in the treasury system could spark a severe event in financial markets.
As investors turn their attention the US elections later this year, the key issues that they would pay attention to are likely around taxation, regulation and American policy on China, he said. — Bloomberg
