The stock market rally has brought cheer to the investors and the market analysts alike but things may not be as rosy as they seem, feels Goldman Sachs. The Wall Street bank seems to be inclined to term the stock rally as ‘irrational’, more than anything else, giving rise to questions about where the markets are heading in reality. Forecasts from them have clearly indicated that they believe the S&P 500 may hit the 2400 mark this year but they expect it to end on a more subdued note somewhere around the 2300 mark by year end.
Records highs being posted
In sharp contrast to Goldman Sachs’ somewhat pessimistic and definitely cautious viewpoint, NASDAQ, Dow Jones and the S&P 500 have all been giving out great news for stock market investors by posting new highs practically every day. According to the bank, what the markets have been seeing is ‘cognitive dissonance’ and this has been the case ever since Donald Trump made his entry into the White House. Shedding more light on what they feel is an anomaly, officials from Goldman Sachs have pointed out that the 10% upwards move in the S&P 500 is not quite in sync with the fact that sell- side analysts put forward negative revisions for earnings- per- share.
Hopes of better things to come giving support
The bank also goes on to explain that there may be good reason for the stocks getting the support they need to perform well. President Trump has promised tax cuts and fewer regulations as well as committing to infrastructure spending. These are viewed as economy and people friendly policies and if they do come in, they could herald a time of strength for the U.S. economy. Confidence in the American economy is stable right now because of the expectations that these measures and policies will be announced soon and will kick in soon, as well. The fact is, however, that these policies have not seen the light of day yet and there is really no way to be completely sure that they will indeed come to be announced.
Goldman Sachs officials point out that sell side analysts have actually trimmed EPS forecasts by a percent since the election came to a close. To add to this, the fact that macro- economic data does not show any dramatic improvements and you can see why the bank is choosing to take a more conservative and cautious stance on the market’s future prospects.