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Goldman Boosts S&P 500 Target by 20% as Strategists Catch Up

(Bloomberg) — Goldman Sachs Group Inc. is the latest firm to boost its year-end price target for the S&P 500, as a relentless rally off the March lows leaves strategist predictions in the dust.

David Kostin raised his forecast for the benchmark U.S. gauge to 3,600 from 3,000, joining the likes of Yardeni Research founder Ed Yardeni and RBC Capital Markets’ Lori Calvasina who’ve upped their forecasts in recent weeks. The rally has caught many investors by surprise, with the S&P 500 now sitting at 3,372.85 — 51% off its March lows — and threatening to eclipse its February closing record. Kostin cited Goldman’s above-consensus U.S. growth expectations keyed off positive news on the vaccine front.

“As the last few months have demonstrated, equity prices depend on not just the expected future stream of earnings but the rate at which those earnings are discounted to present value,” Kostin wrote in a note Friday. “Looking forward, a falling equity risk premium will outweigh a rise in bond yields, and combined with our above-consensus EPS forecast, will lift the S&P 500 Index to 3,600 by year-end.”

See strategists’ year-end forecasts for the S&P 500, as of mid-July, here.

Large stimulus injections have fueled the climb in the S&P 500 since the March sell-off sparked by the pandemic. The gauge briefly surpassed an all-time high last week, helped by better-than-expected economic and earnings data, and optimism about an early roll out of a vaccine.

Kostin said the U.S. election remains a significant risk to his prediction because of challenges in tabulating results in Covid-19 times, though “the largest risk to our forecast is the timing of a vaccine and path of recovery from the pandemic,” he said.

JPMorgan Chase & Co. strategists led by Mislav Matejka on Monday also reiterated their preference for U.S. equities, telling clients to stay bullish despite the strong gains and upcoming U.S. election risks.

Their key reasons? Analysts say that U.S. sectoral exposure to growth and defensive stocks will help it outperform other developed markets, and that American profit growth will likely beat that of Europe.

(Updates with JPMorgan strategy in last two paragraphs)

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