Goldman Sachs reportedly predicted Monday that an expected political stalemate in Washington will push record-setting stocks even higher.
In a note subtitled “United we fall, divided we rise,” David Kostin, chief U.S. equity strategist at Goldman Sachs, said the longest bull market in modern U.S. history will continue in 2020 and mark its 11th anniversary, CNBC reported.
“We expect the current bull market in US equities will continue in 2020. The durable profit cycle and continued economic expansion will lift” stocks, he writes.
Kostin announced earlier this month that his official 2020 S&P 500 target is 3,400, a figure that implies more than 9% upside.
“However, rising political and policy uncertainty will keep the index range-bound for most of 2020.”
“The election outcome could magnify risks or the economic growth outlook could deteriorate,” he added. “A unified federal government post-election could prompt investors to assume the tax cut is reversed and lower projected 2021 earnings per share.”
Meanwhile, Citi warned in a note to clients that the road to the White House in 2020 may entail a war against Wall Street and wealth itself, as polling results encourage more candidates to cast a jaundiced eye toward the financial world.
Some candidates are prioritizing greater accountability for big corporations, while others are concerned that “loosening the reins might foment another financial crisis,” a Citi team led by economist Dana Peterson wrote, Bloomberg reported.
Still others believe “banks and their executives were not sufficiently penalized for the 2008-2009 crisis” and that big companies are anti-competitive and “antagonistic towards consumer protection.”
Banks and wealthy individuals are viewed by others as a revenue source for “re-distributional policies, including further tax relief for low- and middle-income persons, and funding priorities from paid leave to jobs programs,” Citi said.
What should investors do? Understand “what policies can be achieved via legislation versus regulation,” Peterson said. As any president may find law-making -- including altering taxes -- difficult, markets should instead focus on “proposals that can be implemented via regulatory channels, including through executive orders and presidential proclamations.”
To be sure, Chinese internet stocks, housing-related debt, and leasing older planes while the Boeing 737 MAX remains grounded are among the top bets for the coming year by speakers at the Reuters Global Investment Outlook 2020 Summit in New York earlier this month.
The wide array of picks comes at a time when the U.S. stock market is widely seen as having little room to significantly expand past its recent record highs as the Federal Reserve appears ready to pause its path of equity-friendly interest rate cuts, Reuters explained. The benchmark S&P 500 is up nearly 24% since the start of the year, a performance greater than any other developed market equity index.
Instead, investors are shying away from broad bets on the market and instead focusing on more specialized assets in hopes of finding value as global economic growth slows.
“Right now we are at a period of a long bull run and you’ve got the market at historic highs. This is not a time when exposure to the market is going to generate excess return,” said Glenn Hutchins, a private equity investor and a co-founder of technology-investing firm Silver Lake.
Material from Bloomberg and Reuters has been used in this report.
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