Stocks go up and down. Usually.
David Kostin and the equity strategy team at Goldman Sachs write that in the next 12 months, ahead of the Fed's first rate hike, the S&P 500 will rise 6%.
"Markets do not always follow historical patterns," Kostin and his team write, "but we forecast the S&P 500 will rise by 6% during the next 12 months before the expected first Fed hike in 3Q 2015. Stocks also rallied during the year ahead of first Fed tightening actions in 1994, 1999, and 2004. Both micro and macro data suggest the U.S. economy is strengthening."
Kostin and his team also reiterate their call from earlier this month that a "dramatic divergence" is coming to stocks and bonds in the several years.
Goldman still expects stocks to return an inflation-adjusted 4% annualized through 2018 and bonds to return -1% when adjusting for inflation.
These returns for stocks and bonds also assume interest rates get back to their normal historical average of 4%. In this scenario, this is what rates and returns for stocks and bonds would look like.
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