Recently, with the support of favorable interest rate cuts, the US stock market has continued to hit new highs, which can be described as an unstoppable trend. Behind this booming performance, many major Wall Street firms are clearly happy to ignite another flame for it
Goldman Sachs' Chief U.S. Equity Strategist David Kostin predicted on Tuesday that once the dust settles on the U.S. presidential election, the U.S. stock market is expected to continue rising.
Kostin stated in an interview that he expects the S&P 500 index to be around 6000 points in one year. This means that the index will further rise by about 5% from Tuesday's record closing level of around 5725.45 points. The S&P 500 index has risen by about 20% this year, breaking historical closing highs more than 40 times.
In fact, recently on Wall Street, there has been a continuous emergence of people who are optimistic about the S&P 500 index breaking through the 6000 point integer mark.
Julian Emanuel from Evercore ISI was the first person this summer to officially target 6000 points for his predictions. Kostin's colleague and Managing Director of Goldman Sachs Global Markets, Scott Rubner, believes that the S&P 500 index will reach 6000 points as early as later this year.
The most optimistic bull in this year's media survey, BMO Chief Investment Strategist Brian Belski, also stated that the US stock market can easily break through this level.
So, what are the reasons why Kostin is optimistic about the S&P 500 index now?
After the fluctuation of the election, there will be a smooth road ahead
Kostin said that firstly, investors may have to experience some market turbulence in the coming weeks as the election race between US Vice President Harris and former President Trump is about to determine the winner.
He stated that historically, this was a period of increasing volatility and declining stock prices.
There is some uncertainty surrounding the election, so in the short term this will raise some concerns, but this usually resolves with the end of the election. Therefore, over time, the stock market tends to rebound after the election, "Kostin believes.
It is worth mentioning that since the initial 2024 target price forecast was released at the end of last year, Kostin has raised his expectations for the S&P 500 index three times. Recently, he reiterated his target level expectation for the S&P 500 index at the end of this year, which is 5600 points, citing his expectation that the US election will bring short-term fluctuations.
The average year-end target for Wall Street strategists tracked by industry media is expected to be around 5523 points.
Mid cap stocks hold opportunities
In terms of specific stock selection, Kostin believes that there are opportunities hidden in the current mid cap stocks.
He pointed out that the "long-term record" of mid cap stocks is more suitable for allocation than large cap and small cap stocks - with lower P/E ratios. He also mentioned that mid cap stocks often perform well in the 3 and 12 months after interest rate cuts.
Our current focus is on mid cap stocks, as they are the most closely watched area by many portfolio managers in the market. This is an area that has the real potential to outperform the market in the coming year, "Kostin said.
Kostin also believes that strong corporate profits will be the main driving force for the US stock market in the coming months, while previous concerns about weak labor market data trends have been exaggerated. The main reason for the recent increase in unemployment rate is the temporary friction caused by the increase in labor supply and new immigrants, rather than a sudden decline in labor demand.
Last weekend, the Kostin team stated that the slowdown in labor cost growth is actually a good sign for corporate profit margins, which will have a positive impact on the US stock market, especially for companies with higher labor costs.