Goldman Sachs Group thinks that the rally in the US stock market should last for another 2 and a half years, thereby sending the benchmark stock gauge 26% up to 2,100. According to the US Equity Strategist of the lender, David Kostin, the positive 2013 outlook of S&P 500 has played out way faster than the initial expectations. One of the major reasons behind the higher multiple is the increased confidence in the medium-term outlook for the US economic growth. Apart from that, the investor risk appetite was improved as well. The difference between the equity and bond yields will be closed more by the stocks now, rather than the bonds, as assumed by Kostin.
Stock valuations should increase as mentioned by Kostin and he has raised the forecasts for the US equity benchmark. According to his predictions, the same should finish this year at 1,750 and the next year at 1,900. These predictions were published in a research report released on today. Currently, the S&P 500 is trading 16.3 times of the reported operating profit of the same, a value that is 16% less compared to the average.
Incidentally, the Chief US Equity Strategist of JPMorgan Chase & Co., Thomas Lee lifted his estimate to 1,715 from an earlier value of 1,580 on last week. The S&P 500 has been able to jump up by 17% in 2013 after the companies surpassed the earnings estimates. Apart from that, the fact that the Federal Reserve continued with its unprecedented bond buying program known as quantitative easing helped the shares as well.
On today, US shares showed a jump of 0.4% and it is currently at 1,673.17. For 127 days, the index has rallied as a single retreat has not exceeded 5% or more, marking the longest stretch since that of 173 days which ended on 20th February, 2007.
Various companies listed under S&P 500, such as Clorox Co., Apple Inc. etc. raised the dividends in this year, thereby giving the index a higher dividend increase than the earnings expansion it experienced in the first quarter, as commented by Kostin. The dividends should rise by 30% as 2015 ends and the same will increase by 11% by end of this year. This will add another 150 points to the S&P. Kostin mentioned that the dividend growth has been quite robust in nature.