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Goldman Sachs Lifts End-Year S&P 500 Forecast by 20%

By Eric Volkman - Aug 17, 2020 at 8:55PM

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The index will continue notching all-time highs, predicts the storied investment bank.

Pandemic? What pandemic?

Undeterred by the coronavirus outbreak that continues to wreak havoc on the global economy, top investment bank Goldman Sachs (GS 1.08%) today raised its year-end target level on the S&P 500. Goldman now believes the benchmark stock index will hit 3,600 by the New Year, a substantial increase from the company's previous estimate of 3,000. That 3,600 would represent growth of 6% over the current level.

A stock market trading graph.

Image source: Getty Images.

The team of forecasters behind the new prognostication believe that investors will consider equities to be undervalued given a lower-than-expected risk premium.

In a research note, the Goldman team wrote that "[c]hanges in the [equity risk premium] are driven by many factors, including the strength of the economy today, the expected state of the economy going forward, and the confidence investors have in that forward path."

Goldman's analysts are anticipating that a coronavirus vaccine will be developed and approved by the end of this year, with wide distribution to occur shortly thereafter. Should that occur, Goldman's estimate might prove to be modest; the potential impact of an effective vaccine could be profound, lifting stock indexes very much higher.

Although numerous companies are busy developing vaccines against the coronavirus and COVID-19, the disease that can result from it, none have completed all their clinical trials. In additiona, no reputable vaccine candidate has yet been approved by a major regulator for widespread use.

Nevertheless, after enduring serious hits to its value the S&P 500 has steadily recovered since the onset of the pandemic. Its level is just under 3,386, the all-time high it reached in February before the outbreak spread across the globe.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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