Goldman sees S&P 500 rallying 13% by year’s end
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Fresh off its own record quarterly profit, Goldman Sachs Group now sees better financial-sector earnings helping to drive the stock market higher across the board in the second half.
Goldman investment strategist David Kostin added to Wall Street’s bullish tone early today by predicting a 13% gain for the Standard & Poor’s 500 index by year’s end.
Kostin said he expected the blue-chip index to hit 1,060 by Dec. 31, up from his prior forecast of 940.
The S&P first pierced 940 in early June before falling back, but broke through again in the market’s strong rally last week.
Kostin’s enthusiasm is based largely on the idea that financial-sector write-offs will be lower than previously expected this year and next. That led him to boost his 2009 and 2010 earnings estimates for the S&P 500 overall.
He now expects operating earnings of $52 a share for the S&P this year, up from a previous estimate of $40. He lifted his 2010 estimate to $75 a share, from $63.
Both Goldman and J.P. Morgan Chase & Co. reported robust second-quarter earnings last week.
Through Friday, the S&P was up 4% year-to-date and up 39% from its 12-year low reached March 9.
The index had added 6.9 points, or 0.7%, to 947.32 at about 9:30 a.m. PDT today.
In his report, Kostin said the market was in the third phase of a bear-market recovery. The first was the initial euphoric ‘pop’ as the major indexes soared through mid-April. That was followed by a ‘stall’ over the next three months in which the S&P bounced around in a trading range.
The market now is in a ‘sustained rally’ phase, Kostin said. His prediction of a 13% second-half advance in the S&P, he said, would be in line with the 14% mean return in such ‘sustained rally’ rebounds after the five bear markets since 1970.
Kostin advises investors to favor the energy, basic materials, financial, industrial and technology sectors.
What could go wrong? The Goldman strategist says the U.S. economy is ‘the shakiest part of the foundation’ underpinning his forecasts. ‘The risk of a double-dip recession is significant,’ he conceded.
-- Walter Hamilton