Here’s what needs to happen for the S&P 500 to explode 4,300 in 2021
Goldman Sach high estimate on Wall Street for the S&P 500 (^GSPC) in 2021 out of 4,300 isn’t as totally out of reach as it seems right now as headlines swirl around the worsening pandemic globally. It’s just that a lot of things have to go very well, including a powerful setback in corporate earnings growth as the COVID-19 vaccination picks up steam.
“How you get to that 4,300, 4,400 or 4,500 mark has to come from earnings surprises,” said Chris Konstantinos, chief investment officer of RiverFront. Yahoo Finance Live. ” You understand [high S&P 500 targets] by strong pent-up consumer demand. The savings rate is high and some of this spending comes in 2021.”
Konstantinos said his S&P 500 price target for 2021 is “not quite” as high as Goldman’s.
Asking for major earnings surprises from most S&P 500 companies next year — which would push up price-to-earnings multiples and earnings, usually a bullish tailwind for stocks — is a difficult task to gauge where in are the things on the street currently. Certainly, a healthy dose of optimism has already been built into earnings estimates for 2021.
S&P 500 earnings estimates for next year currently sit at $169.20 per share, according to FactSet data. If that number were to be reached, it would represent a record high for S&P 500 earnings and a 21.5% year-over-year increase. This is a large number to ask because the number of people vaccinated is difficult to quantify and the reaction of consumers after vaccination is also very unknown.
Moreover, historical data suggests that analysts are often very wrong in their modeling of future earnings. Analysts have overestimated the end value of S&P 500 earnings for 13 of the past 20 years, according to FactSet data. So who’s to say analysts won’t miss the mark badly next year after enduring a health crisis like no one has gone through before.
Nonetheless, Goldman clings to its aggressive price target of 4,300 S&P like a mouse grabs a piece of cheese.
“Our core assumptions that a vaccine will be widely distributed by mid-2021 and that the U.S. economy will experience a ‘V’ shaped recovery are key drivers of our S&P 500 2021 Year-End Forecast of 4,300,” Goldman’s equity chief said. Strategist David Kostin in a watch out monday.
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