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The S&P 500 can add to record highs through year-end with Trump headed to the White House, Goldman says.
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The top of political uncertainty will bring back investors and spark a post-election rally.
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M&A activity will likely pick up under Trump, presenting one other bull case for stocks.
With the presidential election wrapped up, Goldman Sachs anticipates that the stock market will keep moving higher.
The S&P 500, Dow Jones industrial average, and Nasdaq 100 all hit all-time highs on Wednesday after Donald Trump’s presidential-election victory pleased investors anticipating his pro-business policies.
In accordance with analysts led by chief US equity strategist David Kostin, there are three the explanation why the momentum will sustain:
First, the drop in political uncertainty following a presidential race typically fuels robust year-end returns during election years.
Historically, the S&P has generated a median return of 4% between Election Day and the yr’s calendar end, Goldman said. If the identical happens this time, that may push the benchmark index as much as around 6015, reflecting a forward price-to-earnings multiple of 22x.
“Together with the resolution of election uncertainty, resilient recent economic growth data and continued Fed rate cuts support the healthy near-term outlook for US stocks,” analysts wrote.
Nonetheless, the bank warned that a steep increase in Treasury yields could muddy any post-election rally.
That might occur, because the 10-year rate has already climbed to greater than 4.4% as anticipation of a Trump win mounted through October. Some consider this signal that bond traders are apprehensive over the US fiscal trajectory under Trump, provided that he has offered little policy solutions to the country’s growing debt pile.
Then again, Goldman notes that equities have dismissed the rise in yields as they’ve also climbed on signs of a stronger economy.
Second, the stock market should move higher as investors reallocate into equities.
In accordance with Goldman, investors decreased equity exposure of the election, with hedge funds reducing each net and gross leverage across recent weeks. With uncertainty now headed lower, investors are more likely to reposition into the market, boosting S&P appreciation, the bank said.
Finally, bolstered M&A and IPO activity under Trump’s administration will further support stock prices, Goldman speculates.
Regulation that has come to challenge mergers in recent times will likely be relaxed under the president-elect, boosting business confidence and company money spending, the bank said. An estimated $4 trillion in spending next yr could be split between paying shareholders and investing in growth.