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Expect another year of double-digit gains for the S&P 500.
Goldman Sachs just raised its S&P 500 (^GSPC) year-end 2019 price target to 3100, up from 3000, and also introduced a year-end 2020 price target of 3400 as lower interest rates from the Federal Reserve continue to drive the rally.
The new targets from Goldman suggest another 3% appreciation through year-end, bringing the full-year gain to 24%, and another 10% increase in 2020.
"The dovish Fed pivot has driven the equity market rally in 2019, and we expect low interest rates will continue to support above-average valuations going forward," David Kostin, Goldman's chief U.S. equity strategist, wrote in a note to clients.
Kostin noted that the benchmark index trades at "roughly fair value" today relative to interest rates and profitability.
Meanwhile, Goldman lowered its S&P 500 EPS estimates for 2019 by $6 to $167 on a slowdown in economic growth, lower oil prices, and weaker-than-expected margins.
"Since January, we have noted that 2019 EPS growth would likely equal 3% and 6%, depending on the trajectory of key macro variables," Kostin wrote. "Halfway through the year, economic growth has been below-trend, oil prices have been range-bound, and tariff uncertainty has not abated. We therefore expect that 2019 EPS growth will equal 3%, the low end of the range."
Goldman expects that EPS will "modestly accelerate" to 6% in 2020 and 5% in 2021.
What's more, the likelihood of a recession in the near term is low, and the U.S. economy will likely reaccelerate into 2020.
"Our economists expect US GDP growth will be slightly above trend through 2021, helping drive positive S&P 500 sales and earnings growth," Kostin wrote.
As for investment ideas, Goldman recommends "selective exposure" to cyclicals such as transports and favors healthcare providers and services of pharmaceuticals.
Julia La Roche is a finance reporter at Yahoo Finance. Follow her on Twitter.