In a new report, analysts at Goldman Sachs discuss how equity markets will react to improving economic conditions in the U.S.
The discussion includes a response to Janet Yellen’s recent statement that equities are expensive, three-month and 12-month projections for the S&P 500, and which stocks are Goldman’s most preferred.
Goldman Agrees With Fed Chair
Analyst believe that Fed Chair Janet Yellen was on target with her assessment that equity prices are high but that low bond yields support the high valuations for now.
Goldman is calling for strong U.S. consumer performance to continue to drive GDP growth to the tune of 3.0 percent in Q2, and they see further upside to the stock market while bond yields remain low.
Major Short-Term Upside
Analysts project that the S&P 500 will reach 2150 within the next three months, a 3.0 percent gain from current levels. However, they also believe that the market will begin to cool off over the following nine months once the Federal Reserve begins raising interest rates.
Goldman is calling for the S&P 500 to end the year at 2125 and fall to 2100 by May 2016.
Preferred Sectors
Under the current favorable economic conditions, Goldman is overweight stocks in the Information Technology, Energy and Telecom Services sectors.
Of the stocks in Goldman’s Cyclicals basket, the firm sees the post potential upside in Southwest Airlines Co (NYSE: LUV), General Motors Co (NYSE: GM), Valero Energy Corporation VLO 0.72% and L-3 Communications Holdings, Inc. LLL 0.16%.
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