Homepage / Investment / Suddenly bullish Goldman sees a big 2018 for stocks due to 'rational exuberance'
Overstock.com shares spike after blockchain unit announces for-profit property registry Dow stock Boeing is on track for best year in nearly 4 decades, but the charts point to trouble Another bitcoin rival leaps to a record high, surpassing litecoin's market value Martin Sorrell: Finalized Disney-Fox deal would be a top media investment for us What to expect in Yellen's swan song: 'She's not a showboater' Target to buy grocery delivery service Shipt for $550 million When politicians and executives get caught out Some of Facebook’s early friends now its sharpest critics US says hacker to plead guilty for role in 2016 cyber attacks Laser chip maker Finisar jumps 25% on news that Apple's investing $390 million in the company The Amazon Echo now lets you play Spotify across all of your Echos Citi has 5 reasons — including tax reform and global growth — why Apple can keep crushing market Facebook will start streaming WWE professional wrestling next month Deregulation, global stock rally to 'propel' Morgan Stanley higher in 2018: KBW analyst A new law bans Kaspersky software from use in the US government Bitcoin 'dwarfs' nearly all bubbles, including 1929 crash: Investor Ken Fisher How 2017 became a turning point for tech giants The biggest risk you face when choosing between a human and a robo-advisor Disney deal with Fox would be a ‘home run’ in its battle against Netflix, Amazon, analyst Ives says Stocks making the biggest moves premarket: HON, LLY, AMGN, TM, HD & more Apple's 'innovation complacency' could see it lag Google, Amazon in post-smartphone world, study says Cryptocurrency market now worth $500 billion, more than Warren Buffett's Berkshire Hathaway Tesla stock is up 12 percent in a week — but it could be time to pump the brakes Why Donald Trump's Jerusalem move might have made Russia a lot stronger Weekly mortgage applications fall 2.3% as rates rise Apple invests $390 million into Finisar, which makes laser chips for iPhone X and AirPods Leuthold's Doug Ramsey reveals top sector picks, bullish market predictions Tillerson says the US is ready to begin direct talks with North Korea German stock exchange operator Deutsche Boerse experiences trading disruption Russian court freezes $1.7 billion of Sistema assets at request of Rosneft A top Facebook exec is jumping on the bitcoin bandwagon ECB set to lift its growth outlook as massive bond-buying slowly winds down Swedish fintech start-up iZettle raises $47 million; CEO says 'time will tell' for IPO plans Google's top searches in 2017: Hurricanes, Matt Lauer and Tom Petty Google is blocked in China, but that's not stopping it from opening an AI center there UAE oil giant must build regional 'credibility' ahead of Saudi Aramco IPO next year European markets set to tread water ahead of Fed's decision Founder of a would-be tech powerhouse is blacklisted by China for allegedly disobeying court order Japanese start-up ispace just secured funds for first two lunar missions starting in 2019 China's GDP growth set to plunge to near 30-year low in 2018, ADB warns FBI agents called Trump an 'idiot' during presidential race South Korea may tax capital gains from cryptocurrency trading Japanese e-commerce firm to launch program for tech startups in Singapore I was wrong about bitcoin. Here's why Free money from China comes with strings — as one country's learning the hard way This power couple bought bitcoin in 2013, donated gains to cancer hospital Cramer Remix: What being young and broke taught me about the stock market Companies must have 'a culture of security' to prevent cyberattacks, McAfee CEO says Cramer's charts predict full speed ahead for industrial stocks like Caterpillar, Honeywell Asia markets take cues from a mixed US trading day ahead of Fed decision Cramer finds value-creating, investment-worthy CEOs across industries Novogratz says he would sell litecoin after its surge, sees bitcoin hitting $40k within a few months Here's why bitcoin prices are different on each exchange This start-up is making remote-controlled robots that can do surgery in space Apple’s up 43,000 percent since its IPO, and could soon surpass $1 trillion in market cap MongoDB falls despite earnings beat Why investors should beware stocks getting the bitcoin boost Billionaire investor Druckenmiller: ‘I love Amazon' more than Apple Facebook's accounting shift shows it expects a higher European tax bill next year Coinbase suspends ethereum buys and sells twice in one day Tesla shares pop after PepsiCo orders biggest fleet of Semi trucks so far San Francisco's mayor oversaw tax break that helped spark a new tech boom in the city Net neutrality protests have moved online, but big tech is keeping quiet My kids get 'no screen time whatsoever,' says Silicon Valley investor Chamath Palihapitiya I owned bitcoin for a weekend and here's what I learned NYU's Scott Galloway on bitcoin: It shows young people 'have no faith in our institutions' Some Ryanair pilots in Ireland to strike, German union steps up pressure Companies are already paying a tax rate as low as 13%, economist Yardeni estimates Facebook slams former exec Palihapitiya, saying it 'was a very different company back then' 80% of Wall Street economists, strategists believe bitcoin is a bubble: Survey Facebook to book advertising revenue locally amid political pressure Strategist Tom Lee: Young people will drive bitcoin gains just as boomers boosted stocks in the '80s This founder started in his parents' garage—now his company does over $100 million a year Activision shares to get a boost from Overwatch, Diablo sequels, Goldman says Bank of England to meet amid UK inflation surge: What to look out for Verizon will launch over-the-top service before year-end with NFL as key piece, analyst predicts Chamath Palihapitiya: Apple is 'no different than Louis Vuitton or any other luxury good' Passport's flagship fund to close after 'unacceptable' returns Apple's powerful new computer launches December 14 Despite a deluge of criticism, Mark Zuckerberg had a bountiful year Chamath Palihapitiya says Elon Musk is the 'most important entrepreneur of our generation' Senior Australian politician resigns over China ties scandal Forget bitcoin, one of its biggest cryptocurrency rivals is up nearly 5,800 percent this year Bitcoin futures fall on second day of trading on very low volume as interest wanes Bitcoin millionaire: Don't buy bitcoin Stocks making the biggest moves premarket: PEP, MAT, VZ, MYL & more Tech high flyers could soar 10% or more next year, investor Paul Meeks says Goldman Sachs predicts bumper returns for commodities next year Amazon is not a monopoly but there's no question why it's so dominant, tech investor Palihapitiya says Starbucks customer laptops hacked to mine cryptocurrency Fed Survey: Tax cuts and rate hikes on the way Social Capital's Palihapitiya says bitcoin is going to $1 million in the next 20 years Bitcoin bulls looking to diversify can now put money in a crypto-index fund Ex-Facebook executive Chamath Palihapitiya: Social media is creating a society that confuses 'truth and popularity' More American jobs? Broadcom deal might mean the opposite The bull case for gold as bitcoin captivates America One person reported dead after Austrian gas hub explosion Bitcoin bubble could lead to 'destructive' consequences, UBS says While you were watching bitcoin, the world’s second-largest cryptocurrency hit a big milestone French retail giant to buy mall operator Westfield in the biggest takeover of an Australian company ever


Suddenly bullish Goldman sees a big 2018 for stocks due to 'rational exuberance'

The stock market is in for another strong year in 2018 so long as Congress is able to pass tax reform, according to a Goldman Sachs forecast.

With tax reform, the S&P 500 should close next year at 2,850, a healthy 10.4 percent gain from Monday’s close, the Wall Street investment banking giant said in a look ahead released Tuesday. Should Congress fail to get a bill through, that outlook dims considerably, with an expected level of 2,450, which would represent a 5 percent pullback.

The prediction represents a considerably more bullish tone for Goldman, whose chief U.S. equity strategist, David Kostin, has been reserved in his expectations. In fact, the firm had predicted the S&P 500 to close 2016 at just 2,400, a mark it passed in late May and never looked back.

That brighter view also comes days after the firm’s economists released their own buoyant projections for the year ahead, with expectations for greater growth both in the U.S. and globally and a domestic unemployment rate at its lowest level since 1969.

“Our ‘rational exuberance’ rests on a combination of above-trend US and global economic growth, low albeit slowly rising interest rates, and profit growth aided by corporate tax reform likely to be adopted by early next year,” Kostin said in a report for clients.

The bullishness stems from an expectation that tax reform will generate greater corporate profits.

Under the Republican plan making its way through Congress, the corporate tax rate will get slashed from a highest-in-the-developed-world 35 percent to 20 percent and companies will be able to bring back the $2.5 trillion they have stashed overseas at sharply lower rates.

Though critics believe it will explode the national budget deficit and by extension the $20.5 trillion national debt, Goldman also sees the plan as a cash cow for corporate America.

Under the projections, earnings will grow 14 percent in 2018 and 5 percent the following year.

That would drive the market higher in the years ahead, with the S&P 500 hitting 3,000 in 2019 and 3,100 in 2020. The latter two years represent more muted gains than the 15.3 percent so far in 2017 and the big year in 2018, which Kostin attributes to flatter margins ahead.

In terms of sector benefits, the firm upgraded industrials to overweight “as the sector benefits from solid capex trends, anticipated tax reform, and strong global economic growth.” Financials also are expected to benefit from higher interest rates and less regulation.

On the downside, the firm cut information technology to neutral, with Kostin noting that the sector generates the majority of its profits from overseas and will therefore reap fewer benefits from reform than domestic companies. The sector also is up a stunning 37 percent year to date and is trading at more than 19 times earnings, making it challenging from a value standpoint.

Kostin also outlined three strategies: Secular growth, or companies where sales growth is expected to rise at least 10 percent for multiple years without high valuations; firms that are investing in capital expenditures and research and development; and companies with a strong chance to be acquired.

The current market is reminiscent of the 1990s bull, he added, as stocks are benefiting from an extended economic expansion and low inflation. However, in 1996 Fed Chairman Alan Greenspan, amid a nearly 13-year bull market, issued his memorable “irrational exuberance” warning about valuations. That bull did not end until 2000.

Kostin is less concerned about the state of the present bull market that began in March 2009.

“The current equity market valuation is certainly stretched in historical terms but it does not appear unreasonable based on the high level of corporate profitability,” he said. “An earnings-driven bull market is inherently rational for a fundamental equity investor.”

“Irrational” will only apply if market multiples continue to expand, according to the Goldman view. If the current market would follow the 1990s bull that ended with the dot-com bubble burst, that would push the S&P 500 to 5,300 by the end of 2020, or more than double the current level, he said.

“‘Rational exuberance’ in our view means US stocks should continue to climb and fund managers should remain long, but preferably with a hedge in recognition that a drawdown will eventually occur along the path to a higher market level,” Kostin wrote.

WATCH: Goldman strategist explains then firm’s optimistic view on growth.

Source: Investment Cnbc
Suddenly bullish Goldman sees a big 2018 for stocks due to 'rational exuberance'

Comments are closed.