Gathering this year is stronger than anticipated, as per projections
In a note to clients on Wednesday, Scott Rubner, an equity expert from Goldman Sachs, predicted a significant year-end rally for the S&P 500. The forecast suggests a year-end target of around 6,600 points, marking a notable increase from the earlier forecast of 6,100 and implying roughly 9% upside from current levels.
This optimistic outlook is driven by several factors. First, the anticipated easing of monetary policy by the Federal Reserve, which historically boosts equity valuations, is seen as a key driver. Despite the S&P 500's price-to-earnings ratio being near the 93rd percentile historically, market sentiment remains resilient.
Sector rotations are also expected to play a significant role. Areas less affected by trade tensions, particularly those tied to domestic demand and innovative technology sectors, are favored. This rotation could benefit from a complex trade and tariff environment.
However, Goldman Sachs also advises caution. Potential trade policy shifts, earnings slowdowns, and political pressures that could affect the Fed’s independence and sector dynamics pose risks. Investors are recommended to diversify and hedge against these risks.
It's worth noting that not all analysts share this bullish sentiment. Some Wall Street analysts have recently downgraded their S&P 500 targets for 2025, citing concerns over tariffs and economic slowdown risks. For example, Oppenheimer cut its forecast from 7,100 to 5,950 amid trade uncertainty, and Yardeni Research reduced targets twice.
The predicted rally comes after a period of fear of a recession in the markets. However, recent economic data has significantly reduced this fear. The resumption of share buybacks by companies on October 25 is expected to contribute to the rally. Additionally, the end of uncertainty about the US presidency after the election is also expected to contribute.
In a separate development, billionaire Warren Buffett revealed his stock keeping criteria. While not directly related to the S&P 500 rally prediction, it offers insights into the investment strategies of one of the world's most successful investors.
As we approach the end of the year, the seasonality indicates positive market movements from November onwards. The positive seasonal environment is expected to contribute to the rally predicted by Goldman Sachs. Despite the uncertainties, the potential for a strong year-end rally in the S&P 500 remains, but investors should remain mindful of downside risks.
Business sectors tied to domestic demand and innovative technology, which are less affected by trade tensions, are favored for investing due to the anticipated sector rotations. This optimistic view is supported by Goldman Sachs' forecast for a significant year-end rally in the S&P 500 finance sector, with a year-end target of around 6,600 points.
