The S&P 500 will climb another 10% as the Democrat-controlled government passes new stimulus, Credit Suisse says

US capitol
  • Credit Suisse analysts lifted their S&P 500 target to 4,200 from 4,050 on Thursday, citing Democrats’ victories in Georgia Senate runoff elections as key to ushering in additional fiscal stimulus.
  • The new target implies a roughly 10% climb from current levels.
  • The bank expects President-elect Biden to pass fresh fiscal support that includes another round of direct payments for Americans.
  • New stimulus “will further fan these flames” of pent-up consumer demand as the economy reopens, the team added.
  • Visit the Business Insider homepage for more stories.

Democrats’ upcoming control of the US Senate paves the way for a new fiscal stimulus and healthy stock-market returns throughout 2021, Credit Suisse analysts said Thursday.

The team led by Jonathan Golub lifted its 2021¬†S&P 500 price target to 4,200 from 4,050 in a note to clients, implying a roughly 10% rally from current levels. The bank expects the index’s earnings-per-share to climb to $175 this year and reach $200 by the end of 2022.

Jon Ossoff and Raphael Warnock’s victories in Georgia Senate runoff elections bring Democrats’ seat count in the legislative body to 50, meaning any ties will be broken by Vice President-elect Kamala Harris. The shift in power gives Democrats unified control of the government for the first time since 2011 and gives Biden a far easier path for passing progressive policy.

Fresh fiscal support is likely among the President-elect’s first initiatives when he takes office later this month, Credit Suisse said. Democrats are poised to push for another round of direct payments, an extension to unemployment benefits, state and local government aid, and relief for healthcare workers.

Read more: A growth fund manager who’s beaten 96% of his peers over the last 5 years shares 6 stocks he sees ‘dominating their space’ for the next 5-10 years – including 2 that he thinks could grow 100%

A stronger stimulus response, when combined with a swift reopening, can accelerate the country’s economic rebound, the team of analysts said.

“While the timeline for vaccination rollouts has proven underwhelming, the likely avalanche of pent-up consumer demand cannot be ignored. Any additional stimulus will further fan these flames,” they added.

The bank upgraded several cyclical sectors to “overweight” from “market weight,” including industrials, materials, and consumer discretionary stocks. The groups are among those best positioned to benefit from the start of a new economic expansion and a return to pre-pandemic levels of activity, according to the bank.

The team downgraded the tech, consumer services, and internet retail sectors to “market weight” from “overweight.” Health care and financial stocks remain the bank’s “highest conviction overweights.”

Several other Wall Street giants similarly upgraded their outlooks for stocks and the US economy following Georgia’s elections. Bank of America economists said Wednesday that another $1 trillion in stimulus can “easily” boost US economic growth by one point to 6% in 2021.

Goldman Sachs lifted its 2021 growth estimate to 6.4% from 5.9% on Thursday, citing its expectation for a $750 stimulus package being passed in the first quarter.

Now read more markets coverage from Markets Insider and Business Insider:

Here’s why stocks are at record highs following the Capitol chaos in DC

US service sector expands at fastest pace since September as holiday season lifts activity

Deutsche Bank says buy these 14 beaten-down financial stocks poised for a bullish recovery from 2020’s ‘savage sell-off’ – including one that could rally 30%

Read the original article on Business Insider

Stocks could stumble in early 2021 as investor sentiment surges past market fundamentals, Goldman Sachs says

NYSE Trader
Traders look on after trading was halted on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 18, 2020

  • Goldman Sachs’¬†Sentiment Indicator – which measures how far stock prices are outpacing fundamentals – climbed to two standard deviations above its average on Friday, signaling heightened risk of near-term market weakness.
  • Rising COVID-19 hospitalizations and weak economic data add to the odds of “a modest positioning driven pullback in the next month,” strategists led by Arjun Menon said in a note.
  • The bank still stuck with its forecast that the S&P 500 will rise 16% throughout 2021, hinging the forecast on expectations of widespread vaccine distribution.
  • Such stretched positioning historically led to market weakness over the next one to four weeks, Goldman said. Still, stock returns typically turned positive after two months, the team added.
  • Visit the Business Insider homepage for more stories.

Unusually optimistic investor sentiment endangers the stock market’s near-record levels heading into the new year, Goldman Sachs strategists said Monday.

Positioning in stocks is at “extremely stretched” levels as prices rally further beyond equities’ fundamentals, the team led by Arjun Menon said in a note to clients. The bank’s Sentiment Indicator – which tracks stock positioning among retail, institutional, and foreign investors – landed two standard deviations above average on Friday, representing a 98th percentile reading since 2009. The gauge last hit that level in September 2019, months before the coronavirus ended the US’s longest bull market in history.

Readings above one standard deviation “historically signaled stretched equity positioning,” the team said. Such positioning tends to present a headwind to short-term returns when economic growth is slowing or stable, they added.

“The recent surge in COVID hospitalizations and weaker-than-expected economic data therefore increase the risk of a modest positioning-driven pullback in the next month,” the Goldman strategists said.

Read more: Morgan Stanley’s consumer analysts share 13 high-conviction global stocks to buy to capitalize on the continuing economic recovery

Stocks are trading just off of record highs, most recently falling on concerns of a delayed stimulus package. Enthusiasm around President-elect Joe Biden’s victory and progress toward approving a coronavirus vaccine boosted outlooks on Wall Street through November and fueled a shift in investor capital from growth stocks to riskier value names.

The team still holds a largely bullish outlook toward 2021 market returns despite near-term risks. The bank doubled down on its call for the S&P 500 to hit 4,300 by the end of 2021, implying a 16.3% rally from current levels. Widespread vaccine distribution throughout next year will drive a V-shaped recovery, and any risks from stretched positioning will fade in a few months, the team said.

In prior instances when Goldman’s Sentiment Indicator landed two standard deviations above average, S&P 500 returns were weak in the next one to four weeks but almost always positive after two months, the bank added.

Even with equity allocations at their currently heightened levels, the strategists expect investors to continue pushing cash from money-market funds into the stock market. Cash yields are set to hold near zero for several years, and hopes for economic recovery will set stocks on an upward trajectory, the bank said.

Households and foreign investors are expected to be net buyers of US stocks throughout next year, with the former group poised to push $100 billion into the market. Mutual and pension funds will be net sellers, Goldman said.

Now read more markets coverage from Markets Insider and Business Insider:

Tesla’s latest stock sale is a smart move on the heels of a 667% year-to-date rally, analyst says

Peloton slides 3% after Apple reveals its competing fitness service will launch on December 14

A stock picker at a $558 billion firm lays out 2 under-the-radar trends disrupting the future of transportation- and explains why Slack and Virgin Galactic are perfect fits for his portfolio

Read the original article on Business Insider