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The S&P 500 may hit all-time highs through the end of the year as Trump heads to the White House, Goldman says.
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The end of political uncertainty will bring investors back and spark a post-election rally.
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M&A activity will likely pick up under Trump, presenting another bullish case for stocks.
With the presidential election over, Goldman Sachs anticipates the stock market will continue to rise.
The S&P 500, the Dow Jones Industrial Average and the Nasdaq 100 hit record highs on Wednesday after Donald Trump’s presidential election victory pleased investors anticipating his pro-business policies.
According to analysts led by chief US equity strategist David Kostin, there are three reasons why the momentum will continue:
First, The fall of political uncertainty after a presidential race. It typically drives strong year-end returns during election years.
Historically, the S&P has generated an average return of 4% between Election Day and the end of the year, Goldman said. If the same happens this time, the benchmark would rise to around 6015, reflecting a forward price-earnings multiple of 22x.
“Along with the resolution of election uncertainty, recent resilient economic growth data and continued Fed rate cuts support the healthy near-term outlook for US stocks,” the analysts wrote.
However, the bank warned that a sharp rise in Treasury yields could cloud any post-election rally.
That could happen, as the 10-year rate has already risen to more than 4.4% as anticipation of a Trump victory grew through October. This is seen by some as a sign that bond traders are concerned about the US fiscal trajectory under Trump, given that he has offered few policy solutions to the country’s ballooning debt.
On the other hand, Goldman notes that stocks have shrugged off rising yields as they have also risen on signs of a stronger economy.
Second, The stock market should rise as investors reallocate into stocks.
According to Goldman, investors reduced exposure to stocks during the election, and hedge funds reduced both net and gross leverage in recent weeks. Now that uncertainty is easing, investors are likely to reposition themselves in the market, driving the S&P’s appreciation, the bank said.
Finally, Reinforced M&A and IPO activity under the Trump administration will further support stock prices.Goldman speculates.
Regulation that has come to challenge mergers in recent years will likely be relaxed under the president-elect, boosting business confidence and companies’ cash spending, the bank said. It is estimated that next year $4 trillion will be spent between paying shareholders and investing in growth.