29.12.2021 – A fabulous stock market year is drawing to a close. As always, we look ahead. And we let Goldman Sachs, a mega bull, have its say. We also hand over the microphone to the bears Phoenix Capital Research.
Goldman sees rising profits
Goldman Sachs was right on target this year, with a target of 4,700 for the S&P 500, and the index even managed a record high just above that. A few weeks ago, Chief Equity Strategist David Kostin saw the target for the composite index at 5,100 by the end of 2022. To be sure, he said, valuations are already quite stretched. But that will be offset by growing corporate profits, he said. We comment: So, corporations are managing to pass on inflation to end users.
For example, according to Goldman Sachs, earnings per share (EPS) for the S&P 500 are expected to climb 8 percent to $226 in 2022. And in 2023, rise 4 percent to $236. The S&P 500’s valuation will remain at 21.6 times at year-end 2022, he said. Otherwise, the Fed will start raising interest rates in July, he said.
The most important factor for the bull market to continue: there is no attractive alternative to equities, according to Goldman Sachs. We add: There is no alternative (TINA) specifically means: cash means expropriation, government bonds offer measly returns, gold and silver are not advancing, cryptos are riding a roller coaster.
The gold men’s advice: stock up on virus- and inflation-proof cyclicals; avoid companies with high labor costs; buy high-margin stocks; stay away from unprofitable growth stocks. Overweight Technology, Financials, Health Care.
Always the threat of a bubble
Phoenix Capital Research, on the other hand, warned that the bubble will burst – and that event could make the 2008 financial crisis seem like a picnic. There are some warning signs of this, he said: options volume, as a sign of speculation, is far higher than during the tech bubble. The billion-dollar market for cryptocurrencies has grown rapidly in the meantime, he said. A giant like Tesla is behaving like a penny stock, fluctuating sometimes by 10 percent a day. Digital junk like non-fungible tokens fetch significant prices. Fun stocks sometimes achieved triple-digit gains per day. Former President Donald Trump’s Special Purpose Acquisition Company (SPAC), for example, is already worth $5 billion – even though the business is not even up and running yet.
Moreover, the Federal Reserve is doing nothing about this bubble. Thus, according to Phoenix Capital Research, interest rates are likely to remain at zero until mid-2022. By then, another $90 billion in quantitative easing would be pumped into the market.
Our conclusion from all this is that perhaps both are right. First we will see a new run on stocks and co. because there are actually few alternatives to investing and trading if you don’t want to be expropriated. And then some major event comes along and the exuberant euphoria turns into panic. But then you are also on the right side with shorts. Bernstein Bank wishes you a successful stock market year 2022!
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