The S&P 500 will surge another 20% by year-end 2021, says Goldman Sachs

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  • The ongoing rally in stocks is set to continue next year with a resurgence in corporate profits poised to help the S&P 500 notch an earnings-per-share record, according to Goldman Sachs.
  • In a recent client note, the firm outlined its long-term roadmap for the stock market: a 19% surge to 4,300 by the end of 2021, followed by a continued surge to 4,600 in 2022.
  • Goldman expects US gross domestic product growth to hit 5.3% in 2021, markedly above consensus estimates of 3.8%.
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The US stock market will continue its bull market rally well into 2021, according to a recent client note from Goldman Sachs.

Specifically, Goldman expects the S&P 500 to surge 19% from Monday’s close to 4,300 by the end of 2021, with gains tacking on an additional 7% to 4,600 by the end of 2022.

Driving those gains will be a surge in corporate profits in 2021, with the S&P 500 expected to notch a record $175 in earnings per share, representing year-over-year growth of nearly 30%, according to Goldman estimates.

Most of those expanded earnings will be driven by companies within the technology, materials, and consumer discretionary sectors, the firm said.

And while mega-cap tech stocks like Facebook, Apple, Amazon, Microsoft and Google may appear stretched, Goldman sees more upside ahead.

Read more: RBC says buy these 25 healthcare-tech stocks to reap the benefits of the US digital health industry, which has been accelerated by 5 years because of COVID-19

“Fundamentals support higher valuation for FAAMG,” Goldman said, adding that the mega-cap tech companies offer longer duration in a low interest rate environment, high near-term growth, and low leverage. 

The bank also expects gross domestic product growth to stage an impressive comeback in a post-pandemic world. Goldman said US GDP growth in 2021 will hit 5.3%, well above consensus estimates of 3.8%, and just below its 2021 global GDP growth forecast of 6.0%.

One tailwind benefiting stocks over the next few years is a divided government, assuming that the two Georgia Senate races scheduled for January of next year will be won by Republicans.

Since 1928, the average S&P 500 12-month return was 10% under a divided government, besting periods when the government was controlled by a single party, according to the note.

Despite a global pandemic that led to the sharpest economic decline since the Great Depression, the S&P 500 is up 12% year-to-date as of Monday’s close. 

Read more: 30 years old with a piece of 300 units: Here’s how Evan Holladay is filling a unique multifamily real-estate niche with an under-the-radar strategy

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