S&P 500 on track to hit new highs this year, says Goldman Sachs

By Myles Udland

Goldman Sachs thinks that US stocks will hit all-time highs again this year. In a note to clients over the weekend, Goldman Sachs equity chief David Kostin wrote that the S&P 500 will hit 2050 by the end of this year, and will rise 10% to hit 2150 within a year.

On Friday, the S&P 500 closed at 1964, and the S&P hasn’t hit an all-time high since Thursday, September 18, the day before the Alibaba IPO. Kostin wrote that, "As investors recognise the durability of US growth despite faltering global activity, we expect S&P 500 will climb to 2050 by yearend and rise by 10% to 2150 in 12 months."

So this call for higher stock prices comes despite expectations that earnings estimates will continue to be revised downwards, with earnings expectations for 2015 falling 2% since mid-September. Corporate earnings will likely be dented by falling oil prices, but Kostin wrote that analysts and investors seem focussed only on the negative effects of lower oil prices while neglecting the beneficiaries. But Kostin added that the the fall in oil prices is a net positive for the US economy, specifically consumers.

And while investors may still be thinking about the decline in stocks earlier this month, Kostin wrote that "through the rear-view mirror, the recent sell-off looks remarkably like just another average pullback". And so overall, Goldman expects that as the market digests the recent moves in the stock market and oil prices, the S&P 500 will resume its multi-year run higher.

Back in early August, we highlighted one of Kostin's big calls on overall positioning, specifically that a "big divergence" was coming to US stocks and bonds.