Wall Street observers say that after a year of intense turbulence, there is still room for growth in the record breaking bull market next year. Here is the view of top Wall Street companies on large markets: The S&P 500 index is expected to climb in 2021.
Main Point
- Goldman Sachs stated in its weekend report to clients that it expects Standard&Poor’s to reach around 4300 points by the end of next year (indicating a 17% upside potential), which is a widely accepted “optimistic” forecast, depending on the growth of corporate earnings and the continued low interest rate environment for the company.
- However, almost no one is as optimistic as Goldman Sachs. Morgan Stanley, Wells Fargo, and LPL Financial have all set a target of 3900 points for the S&P by the end of 2021, which is about 6% higher than the current level.
- Wells Fargo and LPL are confident that their company’s earnings will surge by nearly 30% next year, which will help overvalue some growth stocks, causing the average valuation of Standard&Poor’s (S&P) to double from around 22 last year to over 30 times the achieved annual earnings.
Morgan Stanley stated on Monday that cyclical stocks (stocks in discretionary industries such as airlines, restaurants, and hotel chains) have shown significant performance over the past six weeks, indicating an economic recovery, and added that these stocks should “expand their newly discovered leadership positions” next year. However, the company also warned that rising inflation next year could reverse the overall market rally, especially in “expensive growth stocks” (think: resident stocks like Zoom, Peloton, and Shopify); Morgan Stanley points out that if this happens, Standard&Poor’s could plummet by 8% next year.
On Monday afternoon, the S&P index was at 3690 points, up 13% so far this year but down about 0.4% from last Friday’s closing price, as the rapidly growing Covid-19 variant in the UK shook global stock markets.
What to pay attention to
Goldman Sachs pointed out that there are three downside risks in its stock market forecast. The most important thing is that the launch of vaccines in the first half of this year was worse than expected. The company estimated that 50% of the American population will be vaccinated by April, but it also pointed out that “the first week of distribution has proved that the logistics of correct delivery is very complex.” In addition, the increase in the federal government’s spending on the Covid rescue measures and the ongoing asset purchase by the Federal Reserve “may lead to inflation and interest rate soaring”, which has always led to a decline in the market (Morgan Stanley emphasized this appearance when it was slightly stronger). Finally, the Georgia Senate election on January 5th remains a huge source of uncertainty, and if Democrats achieve two unexpected victories, it could disrupt the market,
Jeff Buchbinder, a stock strategist at LPL Financial, said, “Skeptics may argue that the S&P 500 index has risen 64% since its low on March 23, and this market may soon be depleted, but historically, the second year of past bull markets has been delivering returns to investors. He added, “Based on the experience during the 2008-09 financial crisis and the expected strong rebound in returns, we believe that the potential for the first two years of this bull market may be better than average. Once the economy is fully opened up, the increase in consumer demand during the pandemic will help promote recovery.
Since the sharp market correction in March, momentum stocks, also known as technology stocks, have dominated the pandemic bull market. However, in the weeks since the US election, this trend has shifted as the outlook for value stocks improves. Although the growth rate of technology stocks has slowed down, historic breakthroughs in vaccination and new fiscal stimulus agreements have driven many hardest hit areas, such as tourism, finance, and energy industries. Both the S&P and Dow Jones Industrial Average hit historic highs on Thursday.
Bank of America’s stock strategist stated in late November that “the best days usually follow the worst days of the market.” He urged investors to avoid panic selling amid expected volatility in the new year. Since the 1930s, if an investor sits on 10 best return days every decade, their return will only be 19%, while their return since then has been 16485%. Bank of America has issued a 3800 point target for Standard&Poor’s at the end of 2021.
Leave a Reply