• Year-end target for S&P 500 remains at 2,850
  • Under certain circumstances, it could be as high as 3,150
  • Five stocks could deliver sales growth of more than 25%

According to Goldman Sachs, US stock markets will not make any strong movements between now and December, but many of the company’s clients expect an upsurge in the S&P 500.

The firm stated that corporate earnings for Q2 2018 were remarkable, with earnings per share growing by 25% year over year and a 12% increase in sales.

Goldman Sachs Chief US Equity Strategist David Kostin issued a note on Friday saying: “Investors remain concerned about trade and tariffs. However, we were surprised this week when several investors actually struck a different chord, positing optimistic scenarios relative to our starting forecast.”

He confirmed that for the S&P 500, his end-2018 target of 2,850 remained unchanged. This would represent a further 0.6% growth since Friday’s close.

Kostin examined the possible outcomes if the Fed stops increasing rates after two or three more hikes, trade tensions recede, and growth continues to increase. In such a scenario, he estimates that earnings per share for the S&P 500 would increase by 3% next year to $175.

A lower-than-expected Treasury yield would support a market price-to-earnings ratio of 18 times, which could lead to an end-2018 target of $3,150 for the S&P 500; that is 11% above Friday’s closing levels.

Even without a dramatic strengthening of the stock market, Goldman Sachs had advice for its clients on how to outperform the market in a neutral environment: concentrate on shares that offer the fastest top-line growth.

Their sector-neutral list of S&P 500 shares with the highest expected 2019 sales growth has outperformed the S&P 500 by 3 percentage points in 2018.

Five stocks on this list have expected sales growth of more than 25%: Facebook, Concho Resources, Cabot Oil & Gas, Align Technology and Autodesk.


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