Improving economic growth, rising dividends and potentially low interest rates. It’s all good for Wall Street and the stock market.
That’s according to Goldman Sachs, which is taking an ever increasingly bullish view on the S&P 500 SPX +0.19% with some target lifting in a note dated May 20. As they’ve previously said, their upbeat S&P 500 outlook for this year has played out faster than they expected:
“We are raising our S&P 500 dividend estimates and index return forecasts for 2013 through 2015. We expect S&P 500 index will rise by 5% from the current level to 1,750 by year-end 2013, advance by 9% to 1,900 in 2014, and climb by 10% to 2100 in 2015.”
A team led by David Kostin, chief U.S. equity strategist at Goldman Sachs, say a big reason for the target lifts is down to expectations the U.S. economy will achieve above-trend real GDP growth in 2014, ending a six-year period of economic “stagnation.” And in developed economies, the final year of economic stagnation before GDP growth has been linked to price/earnings multiple expansions averaging 15%, note the strategists. They expect the S&P 500 p/e multiple will continue to rise, reaching 15 times at year-end 2013 and 16 times by the end of 2014.
That S&P 500 forward p/e multiple has risen by 30% in 12 months to 14.6 times from 11.4 times, an increase that’s been bigger and faster than Goldman’s baseline forecasts assumed (Goldman recently cautioned that the S&P wasn’t cheap), but it’s still in line with what happened in the post-1990s, so they aren’t overly concerned. The S&P 500 forward p/e multiple has averaged 12.9 times since 1978 and 15.3 times since 1990, Goldman notes.