Goldman reiterated its year-end target for the S&P 500 at 3,600, implying a 6% upside from Monday’s close of around 3,383.
“Despite the sharp sell-off in the past week, we remain optimistic about the path of the U.S. equity market in coming months,” David Kostin, Goldman’s head of U.S. equity strategy, said in a note on Monday.
The S&P 500 is now attempting to rebound from its first two-week losing streak since May, which was sparked by a sharp sell-off in high-flying technology stocks that pushed the Nasdaq Composite into correction territory, falling 10% in just three days of trading.
Goldman called the recent sell-off a “warp speed correction,” noting that reasons for optimism—mainly progress on a coronavirus vaccine and economic reopening—still remain intact.
The firm, citing the rising “probability of a near-term vaccine,” predicts that the S&P 500 will rise further to 3,800 by mid-year 2021—implying around a 10% gain from its current level.
With the likelihood of a coronavirus vaccine by the first quarter of 2021 “rising sharply,” Goldman forecasts GDP growth of 6% in 2021, which is well above the Wall Street consensus of 3.9%.
“Although earnings revisions have stalled in the past month, we expect further reopening and vaccine progress will catalyze another move higher in estimates,” Kostin said.
The S&P 500 is still down by around 5% from its all-time record high of 3,588 on September 2. After plunging over 30% during the height of the coronavirus pandemic shutdowns, the benchmark index has since rebounded over 50% from its low point on March 23.
WHAT TO WATCH FOR
Market sentiment was lifted on Monday by positive news on the vaccine front. AstraZeneca, which has partnered with the University of Oxford, resumed phase three trials for its vaccine candidate in the U.K. following a brief halt due to safety concerns. Pfizer CEO Albert Bourla, meanwhile, said on Sunday that a coronavirus vaccine could be widely distributed in the United States before the end of 2020. “Vaccines for Covid-19 are being developed at a rapid pace... despite substantial uncertainty, the most likely outcome is that at least one vaccine will gain FDA approval this fall,” Goldman Sachs analysts predicted last month. The firm has said that the quicker arrival of a vaccine—with widespread availability by early 2021—would further boost prospects for an economic recovery.