The Trump rally will continue into the early part of 2017, then drop off as the Fed hikes interest rates more than the market expects and sentiment shifts, Goldman Sachs predicts in its forecast for the coming year.
At its core, the outlook sees a tale of two trades: “Hope” that dominates in the first half, then “fear” that takes over the rest of the way.
The good news it that even with a second-half pullback, Goldman has raised its full-year forecast. When all is said and done, the S&P 500 will close at 2,300, a gain of nearly 5 percent from the current level and 100 points higher than the initial 2017 call, the bank’s strategists said.
The bad news is that will be a 100-point drop from the high achieved in the first half.
“U.S. equity investors have focused ‘more on hope than fear’ since Donald Trump’s election. Ironically, many commentators believe his campaign rhetoric focused ‘more on fear than hope,'” David Kostin, Goldman’s chief U.S. equity strategist, and others wrote in a report. “In 2017, we expect the stock market will be animated by competing views of whether economic policies and actions of President Trump and a Republican Congress instill hope or fear.”
Hope will be buoyed by a flurry of activity in the first 100 days that will include proposals for lower corporate taxes, repatriation of overseas corporate cash, a pullback in regulations and government spending stimulus aimed at lifting the U.S. off its tepid post-recovery growth rate, according to Kostin.
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