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Goldman Targets S&P 2100

Goldman Sachs (NYSE:GS) has made some big calls lately, including a very prescient trade to short gold this year — a trade that has already been officially closed by the GS team because of its quick success.

But if you’re curious about the next move Goldman is expecting, it’s awfully straightforward: Buy stocks.

What may get your interest, however, is how much upside GS expects in this trade. Namely, another 5% upside from here in 2013, 14% through 2014 and 25% by 2015.

Broken out sequentially, that would give us a staggering 22% run in calendar 2013, 9% in calendar 2014 and 10% in calendar 2015 based on Goldman’s S&P targets of 1750 by the end of this year, 1900 next year and 2100 in 2015.

Here’s a chart for dramatic effect:

gstargets

The forecast is based on fair value for the market based on price-to-earnings ratios and the idea of GDP growth returning to the norm around the world after a few years of serious trouble and recessions.

“In advanced economies,” Goldman writes, “P/E multiples expanded by an average of 15% during the year before GDP growth returned to trend. Our year-end 2013 implied forward P/E of 15x would represent a 13% increase vs. 2012.”

Oh, and by the way that’s just nominal stock returns – not total returns with dividends baked in. Goldman is even more bullish when you account for quarterly paydays.

“We expect dividends will rise by 30% between 2013 and 2015,” they write.

This is just a forecast, of course, and any number of things could derail these rosy projections — geopolitical unrest, a “black swan” event like the Japanese tsunami, or rising Treasury yields that siphon investors out of equities with modest returns and significantly lower risk.

But it’s worth noting that one of the world’s biggest investment banks is betting big on this rally continuing.

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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Comments
  • Victor

    Hi Charles, thanks for the insight. The improving economy is paving way for the next big rise in the stock market. An upbeat S&P 500 outlook by Goldman is sure to bolster investments in stocks. The market fundamentals and analysts seem to support the S&P spur http://read.bi/11XqlTV