Goldman Sachs sees S&P 500 at 2500, calls as next bullish target

Goldman Sachs has called for 2500 in the US benchmark stock index as the next bullish target in the wake of Trump Presidency before the financial markets take any bearish turn. Goldman Sachs is forecasting a price target of 2200 for 2016, 2350 for 2017, and 2500 for 2018. S&P 500 is currently trading at 2183.

In the heart of this call, lies the tax proposals forwarded by US President-elect Donald Trump, who said he would reduce corporate taxes to as low as 15 percent, charge only 10 percent for repatriation of earnings from around the world, reduce payroll taxes, and simplify tax codes. The current corporate tax rate in the United States is at 35 percent. However, the investment bank is not assuming the extreme but assuming the tax rate to be cut down to 25 percent, under which case, the average earnings in S&P 500 would rise to $130 per share in 2017 and $140 per share in 2018 from current $119 per share. This is a 9.2 percent and 7.7 percent rise respectively.

Our current forecast for S&P 500 is exactly in line with Goldman Sachs’, we expect the S&P 500 to reach around 2500 but our forecast takes into account on only the EPS parts but other Trump policies such as increased infrastructure spending as well. We feel the only Glitch in Goldman Sachs’ EPS forecast is the assumption of the cost of capital. Goldman is assuming inflation at 2 percent for 2017, and 2018. It is assuming 10-year treasury rates at 2.25 percent for 2017 and between 2-3 percent for 2018. Both of these could overshoot the assumptions.