- The rally in stocks is set to continue next year, with a resurgence in corporate profits poised to help the S&P 500 notch an earnings-per-share record, Goldman Sachs said.
- In a recent client note, the firm outlined its long-term road map for the stock market: a 19% surge in the S&P 500, to 4,300, by the end of 2021, followed by a surge to 4,600 in 2022.
- Goldman said it expected US GDP growth to hit 5.3% in 2021, markedly above consensus estimates of 3.8%.
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The US stock market will continue its bull-market rally well into 2021, Goldman Sachs said in a recent client note.
Specifically, Goldman said it expected the S&P 500 to surge 19% from Monday’s close, to 4,300, by the end of 2021, with gains tacking on an additional 7%, to 4,600, by the end of 2022.
Driving those gains would be a surge in corporate profits in 2021, with the S&P 500 expected to notch an earnings-per-share record of $175, representing year-over-year growth of nearly 30%, Goldman estimated.
Most of those expanded earnings would be driven by companies in the technology, materials, and consumer-discretionary sectors, the firm said.
“Fundamentals support higher valuation for FAAMG,” Goldman said, adding that the mega-cap tech companies offered longer duration in a low-interest-rate environment, high near-term growth, and low leverage.
The bank also said it expected gross domestic product growth to stage an impressive comeback. Goldman predicted that US GDP growth in 2021 would hit 5.3%, well above consensus estimates of 3.8% and below its 2021 global GDP growth forecast of 6%.
One tailwind that would benefit stocks over the next few years is a divided government, should Republicans win the two Senate runoff races in Georgia in January. Since 1928, the average S&P 500 12-month return was 10% under a divided government, besting periods when a single party controlled the government, Goldman said.
Despite a global pandemic that led to the sharpest economic decline since the Great Depression, the S&P 500 is up 12% year-to-date as of Monday’s close.