Goldman Sachs says stocks near peak

Firm finds S&P 500 now trading near fair value, sees limited additional upside

Jul 22, 2019 @ 10:38 am

By Bloomberg News

The S&P 500 Index is now trading near its fair value, with limited further upside after its 19% climb so far this year, according to Goldman Sachs Group Inc.

"The path forward for index ROE is likely to be challenging, although lower interest rates and lower tax rates may provide support," Goldman strategists including David Kostin wrote in a note to clients, referring to return on equity. Negative revisions to 2020 earnings-per-share forecasts and "policy uncertainty" will limit upside potential, they wrote.

(More: Top 50 equity ETFs in second quarter)

Benchmark American equity gauges reached record highs this month as investors bet that Federal Reserve interest-rate cuts will ensure the economy avoids a major downturn. Traders are fully pricing in a quarter-point cut at the July 30-31 Federal Open Market Committee meeting.

(More: Top 50 equity mutual funds in second quarter)

"The S&P 500 index trades near fair value relative to interest rates," the Goldman strategists wrote. It's also appropriate relative to profitability and historical price-to-book valuations, they added.

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