Goldman Sachs Highlights Growth as Key Stock Market Driver
Goldman Sachs Emphasizes Growth Over Rate Cuts
In today's market landscape, the dynamics influencing stock prices have shifted notably. Recent analysis from Goldman Sachs suggests that while economic growth has been downgraded, expectations surrounding Federal Reserve easing continue to support the S&P 500, keeping it near its historic highs.
Fed's Rate Cut Predictions
Goldman Sachs anticipates a 25 basis point cut by the Federal Reserve in the coming week, projecting an easing of up to 200 basis points by early 2026. This forecast is somewhat conservative when compared to market anticipations, which estimate around 260 basis points in easing. Currently, the futures market reflects a 45% likelihood of a 50 basis point cut next week, coupled with an expectation of 115 basis points total easing in 2024 and an additional 140 basis points in 2025.
The Relationship Between Growth and Equities
Traditionally, economic growth and Fed policy have had an inverse relationship. Rising growth often raised inflation fears, suggesting tighter monetary policy, prompting markets to react negatively to positive economic news—a sentiment encapsulated by the phrase “good news is bad news.” However, Goldman Sachs indicates that this correlation has evolved. Recently, there has been a shift toward a positive correlation, with economic strength leading to bullish sentiment in stocks, suggesting that “good news is good news” again.
Outlook on Stocks Amid Economic Resilience
Goldman strategists argue that if the economy continues to exhibit resilience, it could suppress expectations for Fed easing, leading to a rise in stock prices, even with higher bond yields. Conversely, should economic data falter, leading to increased expectations for Fed cuts, stocks may face challenges, despite a drop in bond yields.
Year-End Targets and Future Projections
In their baseline scenario, Goldman Sachs foresees sustained economic growth contributing to a modest uptick in bond yields, while also fostering earnings growth. This scenario aligns with their projected year-end target for the S&P 500 at 5600, alongside revised targets of 5700 and 6000 for 6-month and 12-month projections, respectively.
Frequently Asked Questions
What is Goldman Sachs' current prediction for the Federal Reserve's rate cuts?
Goldman Sachs predicts a 25 basis point cut by the Fed next week and anticipates a total easing of 200 basis points by early 2026.
How does economic growth influence stock prices according to Goldman Sachs?
Goldman Sachs highlights that economic growth is now a more critical factor for stock performance than the speed of rate cuts, with a resilient economy potentially driving stock prices higher.
What is the correlation between equities and bond yields currently?
The relationship has shifted to a positive correlation, indicating that strong economic news can positively influence stock prices.
What targets has Goldman Sachs set for the S&P 500?
Goldman Sachs has set a year-end 2024 target for the S&P 500 at 5600, with further targets of 5700 and 6000 for 6-month and 12-month benchmarks.
How does weaker economic data impact stock market performance?
Weaker economic data could lead to a higher expectation for Fed easing, which may cause stock prices to decline, even in a scenario of dropping bond yields.
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