A Goldman Sachs sign is seen on at the company’s post on the floor of the New York Stock Exchange.
REUTERS/Brendan McDermid
Goldman Sachs raised its 2019 year-end price target for the U.S. benchmark S&P 500 index by 3% to 3,100 points on Tuesday, but revised down its earnings estimates, citing weakness in economic activity and margin outlook.
In a research note, the Wall Street giant lowered its 2019 earnings-per-share (EPS) estimate for the index by $6. EPS is an important metric for traders which is used to gauge the value of a stock. At the start of the year, it predicted that 2019 EPS growth would likely equal between 3% and 6%, but now expects it will hit just 3% at the lower end of that range. “Economic growth has been below-trend, oil prices have been range-bound, and tariff uncertainty has not abated,” the analysts, led by Chief U.S. Equity Strategist David Kostin, said.
But despite the earnings squeeze it’s still positive on a further rise for stock markets. The new price target for the S&P 500 implies a 24% full-year gain for 2019. It also set a 2020 year-end price target of 3,400, a 10% rise from the 2019 target.
“The dovish Fed pivot has driven the equity market rally in 2019, and we expect low interest rates will continue to support above-average valuations going forward,” the note said.
The overall forecast would see the U.S. stock market extend a decade-long bull run into another year, and breach the intra-day record posted last week. The S&P 500 closed at 3,020 points on Monday.
Investors are expecting the Federal Reserve to cut interest rates by a quarter-point on Wednesday, with some analysts pricing in a further cut before the end of the year. The Goldman analysts suggested several strategies for investors, including to “add selective exposure to cyclical equities such as transports” and to favor health-care providers and services over pharmaceuticals.
