Goldman Sachs is optimistic the US stock market sell-off is almost over and keeps its S&P 500 3,600 year-end target

goldman sachs
  • The S&P 500 will still hit 3,600 by year end despite the recent tech-sell off, Goldman Sachs said on Friday.
  • A team led by David Kostin, said: “We still expect the market will rise to 3600 at year-end 2020 and 3800 at mid-year 2021 driven by improving earnings prospects and a declining risk premium.”
  • Superforecasters at the Good Judgement are betting on a 68% of a probability of having a widely distributed vaccine by Q1 2021, up 40% compared to three weeks ago. 
  • The bank first said S&P 500 would hit 3,600 by year end last month but a recent tech sell-off brought into question whether stocks may tip lower. 
  • The bank also said a vaccine would likely increase EPS estimates, “particularly for cyclicals.”
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The S&P 500 will still reach 3,600 by year end despite a recent stock market sell-off, Goldman Sachs said Friday. 

In a note, analysts led by David Kostin said the S&P 500 is expected to be 3,600 by the end of this year, and 3,800 by mid 2021, supported by hopes a vaccine will be widely distributed by the first quarter of 2021. 

The S&P 500 closed just shy of 3,341 on Friday. But the index has lost 5% since touching an all-time high of 3,520.25 at the end of August. 

A sell-off in big tech firms like Tesla caused the index to also close 2.5% lower last week, marking its largest weekly fall in three months. 

“Despite the sharp sell-off in the past week, we remain optimistic about the path of the US equity market in coming months. The Superforecaster probability of a mass-distributed vaccine by 1Q 2021 has surged to nearly 70% and economic data show a continuing recovery,” Goldman Sachs said. 

The bank added while earnings estimates have “stalled” in the past month, progress on a vaccine will boost forecasts. 

Goldman is by far the most bullish investment bank on Wall Street. It predicted last month the index would hit 3,600 if markets price in a “comparatively more optimistic US GDP forecast.” 

The bank on Friday upgraded its third quarter US GDP forecast to an expansion of 35% after a stronger than expected August jobs report. 

“We still expect the market will rise to 3600 at year-end 2020 (+8%) and 3800 at mid-year 2021 (+14%) driven by improving earnings prospects and a declining risk premium,” Goldman said.

But Goldman said despite this week’s “setback in one clinical trial”, superforecasters at the Good Judgement are betting on a 68% probability of mass-distributed vaccine by 1Q 2021, up from 40% three weeks ago. 

Anglo-Swedish pharma group AstraZeneca resumed its vaccine trial with Oxford University this weekend after it was forced to halt the trial last week when one of its participants fell ill. 

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Goldman Sachs also said expectations of a vaccine being delivered early next year is the key reason it expects US GDP growth of 6% next year versus a consensus of 3.9%. 

The bank has a top-down 2021 S&P 500 EPS forecast of $170, which it said was above the bottom-up consensus of $165, compared with EPS in 2019 of $165.

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It said EPS sentiment has been positive since June but revisions to 2021 earnings have “stalled” in the past month. 

Morgan Stanley warned last week guidance on company earnings has become more unpredictable than ever.

But Goldman Sachs concluded: “A vaccine would likely catalyze another move higher in EPS estimates, particularly for cyclicals.”