- The ongoing 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, according to Goldman Sachs.
- In a recent client note, the firm outlined its long-term roadmap for the stock market: a 19% surge to 4,300 by the end of 2021, followed by a continued surge to 4,600 in 2022.
- Goldman expects US gross domestic product 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, according to a recent client note from Goldman Sachs.
Specifically, Goldman expects 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 will be a surge in corporate profits in 2021, with the S&P 500 expected to notch a record $175 in earnings per share, representing year-over-year growth of nearly 30%, according to Goldman estimates.
Most of those expanded earnings will be driven by companies within 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 offer longer duration in a low interest rate environment, high near-term growth, and low leverage.
The bank also expects gross domestic product growth to stage an impressive comeback in a post-pandemic world. Goldman said US GDP growth in 2021 will hit 5.3%, well above consensus estimates of 3.8%, and just below its 2021 global GDP growth forecast of 6.0%.
One tailwind benefiting stocks over the next few years is a divided government, assuming that the two Georgia Senate races scheduled for January of next year will be won by Republicans.
Since 1928, the average S&P 500 12-month return was 10% under a divided government, besting periods when the government was controlled by a single party, according to the note.
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.