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Goldman: S&P 500 'Will Tread Water' for Second Consecutive Year in 2016

Goldman: S&P 500 'Will Tread Water' for Second Consecutive Year in 2016

By    |   Wednesday, 25 November 2015 07:00 AM

Goldman Sachs analysts warn that the S&P 500 will stall next year at current levels, urging investors to be cautious amid rising interest rates.

Goldman analysts forecast the year to end right about where it began, with the S&P 500 stuck at 2,100 “amid a morass of higher interest rates, the end of margin expansion and a "bifurcated" market through which participants will have to tread carefully,” CNBC explained.

"We forecast the S&P 500 index will tread water for a second consecutive year in 2016," Goldman said in a report for clients this week. "In many ways our 2016 forecast is 'deja vu all over again,'" the report said.

“The weak market will come amid little growth in fundamentals, with gross domestic product projected to increase just 2.2 percent in both 2016 and 2017 and a 10 percent rise in corporate profits but a plateau in margins at 9.1 percent,” CNBC reported.

Goldman said the increase in profits will be "misleading" in part because of a reversal in this year's earnings story. Much easier comparables in energy, which is expected to decline 58 percent for the full year, will inflate the 2016 picture, CNBC reported.

"When investors realize tightening will be more sustained than most expect, the P/E multiple will contract and offset the positive impact of higher" earnings per share, the report said.

"In terms of risks, uncertainties include (1) interest rate path different from our baseline assumption of year-end 2016 fed funds at 1.4 percent and 10-year bond yields of 3.0 percent; (2) global economic growth below our 3.5 percent forecast; (3) U.S. presidential election; and (4) geopolitics," Goldman said.

Meanwhile, Bank of America Merrill Lynch’s Savita Subramanian, head of U.S. equity strategy and U.S. quantitative strategy, has forecast that the Standard & Poor's 500-stock index will reach 2,200 in 2016, Bloomberg reported.

She also included a target of 3,500 by the year 2025. As of now, the index is hovering a little below 2,100.

For next year, Subramanian says to "stick with the S&P 500," despite valuations having less room to run and a long-in-the-tooth bull market in equities heading into its seventh year.

"We expect modest gains for U.S. large cap stocks in 2016: the likelihood of a recession in the next 12 months is low in our view," the analyst added. Neither valuations nor the economic data look particularly worrisome when compared with previous peaks in the market, according to BofAML.

(Newsmax wire services contributed to this report).

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Goldman Sachs analysts warn that the S&P 500 will stall next year at current levels, urging investors to be cautious amid rising interest rates.
Goldman Sachs, Stock Market, Invest, S&P 500
413
2015-00-25
Wednesday, 25 November 2015 07:00 AM
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