Goldman’s Guide To Investing In 2017

Over the course of the last week, I’ve brought you Goldman’s top trades and top themes for 2017 (here and here, respectively).

The great thing about Goldman’s predictions is that there’s something for everyone. For those who hold the bank’s analysts as the “smartest guys on the Street,” you can look to the Squid’s predictions as a guide to where markets are headed. For those who are convinced that the bank is out to “muppetize” as many clients as absolutely possible, Goldman is a contrarian indicator.

One thing we do now know is that the whole “Government Sachs” meme won’t be changing under Donald Trump what with the firm’s President Gary Cohn being named the President elect’s top economic advisor on Monday.

With that in mind, consider the following list of “key conclusions” from Goldman’s guide to investing in the new year:

S&P 500 index will rise to 2400 in 1Q but fade to 2300 by year-end 2017 (5% price gain)

“Hope” is potential for positive EPS revisions from lower corporate taxes, repatriation of overseas cash, less regulation, and fiscal stimulus.

“Fear” is risk that budget deficit limits tax reform, rising inflation prompts Fed to tighten steadily, and bond yields continue to rise.

Fundamentals: (1) 2% economy; (2) 10% EPS growth; (3) High valuation; (4) Money flow

Economy: In 2017, US GDP will grow by 2.2%; PCE inflation will climb to 1.8%, and GS economics forecasts 1.4% fed funds by year-end.

Earnings: Operating EPS will rise by 10% to $116 while adjusted EPS rises 5% to $123. Repatriated cash will help buybacks jump by 30%.

Valuation: S&P 500 index trades at an elevated valuation (85th percentile) on most metrics. Median stock trades at the 98th percentile.

Money Flow: Potential upside risk as investors shift assets away from bonds as rates rise and into domestic stocks as USD appreciates

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