- Goldman Sachs increased its 2021 target on the S&P 500 to 4,700 from 4,300, implying further upside for the benchmark that's already climbed 17% this year.
- Strategists raised their per-share earnings view and see earnings growth as the primary driver for further S&P 500 gains.
- Goldman also raised its price target and per-share earnings projection for 2022.
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Goldman Sachs pushed up its target for the S&P 500 index on Thursday, saying growth in corporate earnings should in part drive the broad-equity market measure up by 7% by the end of 2021.
The investment bank now sees the index reaching 4,700, higher than its previous projection of 4,300. The call implies a 7% upside from current levels and full-year price returns of 25%, equity strategists led by David Kostin wrote in a note published Thursday.
The projection is the highest among Wall Street strategists, according to Bloomberg, citing its monthly survey. Goldman also increased its outlook for 2022.
The benchmark index closed at 4,402.66 on Wednesday, leaving its year-to-date gain at more than 17%.
"The combination of higher-than-expected S&P 500 earnings and lower-than-expected interest rates drive our upgraded price targets," said Goldman.
The S&P 500 has risen for six straight months and has hit multiple record highs, bolstered by expectations for robust profit growth. Goldman said earnings growth -- as it has been so far this year -- will be the primary driver of US equity returns in the second half of this year and in 2022. It boosted its 2021 per-share earnings estimate to $207 from $193, which would represent a 45% surge in annual growth.
"Relative to consensus, we expect stronger revenue growth and more pre-tax profit margin expansion as firms successfully manage costs and as high-margin tech companies become a larger share of the index," wrote Kostin.
Goldman said its price targets for the benchmark are highly sensitive to assumptions about interest rates and corporate tax reform, which have uncertain outlooks. Its baseline equity forecast assumes Congressional passage of tax reform and the 10-year Treasury yield rising modestly to 1.6% at year-end.
For 2022, the strategists expect the S&P 500 to reach 4,900, up from its previous outlook of 4,600, implying a full-year return of 4%. They also foresee 2% annual earnings growth in raising its per-share earnings estimate to $212 from $202. The earnings estimate for next year assumes the implementation of a narrower version of President Joe Biden's tax plan.