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Goldman sees S&P 500 at 1,500 in 2011
Street powerhouse’s forecast pegs leading stock index’s gain at 19%
By Sam Mamudi, MarketWatch
NEW YORK (MarketWatch) — Goldman Sachs analysts have rung in the new year with a prediction that the Standard & Poor’s 500 stock index will reach the 1,500 mark during 2011.
This would imply a 19% gain for the benchmark index /quotes/comstock/21z!i1:in\x (SPX 1,272, -2.35, -0.18%) , oupacing a 13% rise in 2010. On Dec. 31, the S&P 500 closed at 1,257.64.
The analysts said total returns for investors would amount to 21%, including a 2% dividend yield. As well as their full-year prediction, they called for a three-month rise to 1,325 and a six-month rise to 1,400.
“Our price target revision stems almost entirely from our higher earnings estimate,” wrote the analysts. “Our 19% return is split evenly between earnings growth and multiple expansion.”
Goldman sees the U.S. economy generating growth of 3.4% this year, and the analysts noted that every 0.5% shift in gross domestic product equals $2 a share in earnings and $4 a share in profit margins. They predicted that in nominal terms, the U.S. economy will be 5% larger by the end of 2011 than today.
Eyes on disappointing jobs figure
George Stahl discusses how the disappointing December jobs number is likely to affect markets on Friday.
“Our new estimates imply earnings-per-share growth of 14% in 2011 and 11% in 2012,” they wrote. “Faster economic growth drives our sales growth forecasts of 8% in 2011 and 7% in 2012.”
They said they expect full-year 2010 earnings will reach $84 a share, which is 92% of the previous peak. The analysts added that while the economy at the end of 2010 was 16% larger than at the end of 2005, the S&P 500 ended the year up just 1% over the same interval.
The analysts pointed to several reasons to believe Goldman’s better-than-consensus view of U.S. economic growth, including unemployment claims falling below 400,000 at the end of December for the first time since July 2008, rising private payrolls, a halt in the increase in the savings rate and a predicted 3.5% rise in personal consumption expenditures this year. They also noted that the Institute for Supply Management’s manufacturing survey has risen for 17 consecutive months.
The note was published before Labor Department data released Friday showed that the U.S. unemployment rate fell to 9.4% in December, its lowest level since May 2009. The month’s gains in nonfarm payrolls, however, came in below expectations. Read in full about latest job numbers.
Sector picks, weightings and allocations
Goldman’s note contained several suggestions for how investors should play the potential upside for equities this year. In particular there was a focus on cyclical exposure and on stocks that will reflect rises in the market.
“For mutual funds we recommend overweighting information technology, financials and energy, and underweighting health care, consumer staples, and utilities,” they wrote.
Among the other recommendations were several baskets of stocks, including a basket with stocks that have the highest combined beta to the stock market and economy, a basket of stocks comprised of companies in each sector with the highest forecast return on equity, and another basket made up of firms that have the highest risk-adjusted returns relative to the S&P 500. They also recommended a dividend growth basket.
“This strategy should outperform given the scarcity of yield in the current capital markets,” they noted.
Sam Mamudi is a reporter for MarketWatch, based in New York
Goldman sees S&P 500 at 1,500 in 2011
Street powerhouse’s forecast pegs leading stock index’s gain at 19%
By Sam Mamudi, MarketWatch
NEW YORK (MarketWatch) — Goldman Sachs analysts have rung in the new year with a prediction that the Standard & Poor’s 500 stock index will reach the 1,500 mark during 2011.
This would imply a 19% gain for the benchmark index /quotes/comstock/21z!i1:in\x (SPX 1,272, -2.35, -0.18%) , oupacing a 13% rise in 2010. On Dec. 31, the S&P 500 closed at 1,257.64.
The analysts said total returns for investors would amount to 21%, including a 2% dividend yield. As well as their full-year prediction, they called for a three-month rise to 1,325 and a six-month rise to 1,400.
“Our price target revision stems almost entirely from our higher earnings estimate,” wrote the analysts. “Our 19% return is split evenly between earnings growth and multiple expansion.”
Goldman sees the U.S. economy generating growth of 3.4% this year, and the analysts noted that every 0.5% shift in gross domestic product equals $2 a share in earnings and $4 a share in profit margins. They predicted that in nominal terms, the U.S. economy will be 5% larger by the end of 2011 than today.
Eyes on disappointing jobs figure
George Stahl discusses how the disappointing December jobs number is likely to affect markets on Friday.
“Our new estimates imply earnings-per-share growth of 14% in 2011 and 11% in 2012,” they wrote. “Faster economic growth drives our sales growth forecasts of 8% in 2011 and 7% in 2012.”
They said they expect full-year 2010 earnings will reach $84 a share, which is 92% of the previous peak. The analysts added that while the economy at the end of 2010 was 16% larger than at the end of 2005, the S&P 500 ended the year up just 1% over the same interval.
The analysts pointed to several reasons to believe Goldman’s better-than-consensus view of U.S. economic growth, including unemployment claims falling below 400,000 at the end of December for the first time since July 2008, rising private payrolls, a halt in the increase in the savings rate and a predicted 3.5% rise in personal consumption expenditures this year. They also noted that the Institute for Supply Management’s manufacturing survey has risen for 17 consecutive months.
The note was published before Labor Department data released Friday showed that the U.S. unemployment rate fell to 9.4% in December, its lowest level since May 2009. The month’s gains in nonfarm payrolls, however, came in below expectations. Read in full about latest job numbers.
Sector picks, weightings and allocations
Goldman’s note contained several suggestions for how investors should play the potential upside for equities this year. In particular there was a focus on cyclical exposure and on stocks that will reflect rises in the market.
“For mutual funds we recommend overweighting information technology, financials and energy, and underweighting health care, consumer staples, and utilities,” they wrote.
Among the other recommendations were several baskets of stocks, including a basket with stocks that have the highest combined beta to the stock market and economy, a basket of stocks comprised of companies in each sector with the highest forecast return on equity, and another basket made up of firms that have the highest risk-adjusted returns relative to the S&P 500. They also recommended a dividend growth basket.
“This strategy should outperform given the scarcity of yield in the current capital markets,” they noted.
Sam Mamudi is a reporter for MarketWatch, based in New York
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