Posted by on January 3, 2017 2:40 pm
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Categories: 1Q Business economic policy Economy Inflation Price Action Reflation S&P 500 Stock selection criterion Target Corporation Weekly Kickstart

About 3 months ago, Goldman’s year end S&P500 target for 2016, 2017 and 2018 were 2,100; 2,200 and 2,300 respectively. Then, as readers are well aware, everything changed with the Trump election which unleashed a surge in US equities and the dollar, on expectations of reflation and fiscal stimulus. That prompted Goldman to boost its S&P price target by roughly 200 points across the board, as it merely tried to keep up with the price action.

Understandably, there was some confusion, so to address it, overnight Goldman’s chief equity strategist David Kostin released his first “weekly kickstart” report, which summarized Goldman’s latest goalseeked forecasts for the S&P500 as follows: “S&P 500 rose 9.5% for a total return of 12.0% in 2016; We forecast a 5% total return in 2017

The details:

[2016] year was a story of two halves: Cyclicals underperformed Defensives by 4 pp in the first half before reversing and outperforming by 18 pp in 2H. Energy was the best performing sector (+27%) while Health Care was the only sector with a negative full year return (-3%). Return dispersion averaged 25 pp ranking in the 43rd percentile vs. the last 30 years.

We expect dispersion will increase next year giving rise to better stock picking opportunities.

S&P 500 will rally to 2400 in 1Q 2017 alongside enthusiasm over corporate tax cuts but budget constraints will limit the magnitude of tax reform and fiscal spending and the index will fade to 2300 by year-end.

And the charts:

Finally, if anyone is still looking for absolute and risk-adjusted returns by key asset classes for 2016, here they are:

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