How much further can the S&P 500 climb this year? Goldman Sachs says it still has room to grow.
Goldman analysts predict the market will climb another 7% from current levels—to 4,700—by the end of the year, according to a report published Aug. 5. For 2022, Goldman has set a new year-end target of 4,900 points, up 300 points from its previous target. The S&P was trading at 4,421, up 0.43% from market open early afternoon.
“The combination of higher-than-expected S&P 500 earnings and lower-than-expected interest rates drive our upgraded price targets,” chief U.S. Equity strategist David Kostin and other Goldman analysts wrote in the report.
In the heat of a strong earnings season, Goldman’s forecasts are a vote of confidence from Wall Street for the continued climb in the U.S. Stock market, despite concerns over inflation. The market has hit a series of record highs this year and is currently up more than 19% from January. If the market follows Goldman’s new estimates, that would put the S&P at 25% for the full year of 2021. The annualized return for the S&P since the 1950s is roughly 8%.
The investment bank is attributing the success of the S&P to continued strong company performance throughout the year—that’s despite some challenging broader trends, such as COVID-induced pipeline blockage supply-chain issues and labor shortages. Consumer and industrial prices are spiking, even as the equities market ascend.
It’s corporations and households that will keep driving S&P 500 prices up throughout this year, according to Goldman. Companies have announced buybacks of $683 billion in shares year to date, and low interest rates should lead Americans to keep scooping up equities, analysts point out.
Of course, there are some factors to look out for, namely potential reforms to the corporate tax code, which Goldman expects to pass later this year, and changes in interest rates. Should interest rates go up more than expected—whether it be from better economic growth or persistent inflation or the Fed—the S&P 500 price may fall.
Some contrarians point to major red flags stemming from interest rates and inflation—that’s in addition to aerated markets stemming from baby boomers upping their investments right now and deficit spending ballooning corporate profits. Is it sustainable? As for now, markets keep climbing.