Bloomberg Audio Studios, Podcasts, radio News. I'm standing by with David Costin, chief US Equity Strategists over e Goldman Sachs, and it's an interesting day because we do see the SMP just over fifty two one hundred. Of course, we know that is also your target for the s and P five hundred for the end of the year. David, what would cause you at this point to boost that target?
Well, the target is based on fundamental analysis and the way we think about it has the economy, earnings, valuation, and money flow and so on that basis, our fifty two hunderd target is what we're looking for. So in order for us to raise or lower the target, one
of those variables would have to have to change. So the economic data in our assumptions are going to be reflecting growth of roughly three percent a little bit less than three percent, earnings are growing around eight percent, and valuations currently are high there at an index level basis almost twenty one times earnings, and so the probability of a multiple expansion, while possible, is less probable. The idea of earnings being much greater than we're assuming we think
is pretty low. And then the question would then be money flow. So in that framework, economy, earnings, valuation, and money flow is suggestive and supports our analysis around five thy two hundred, which is a target for the end of the year, which is, as you indicated, roughly a flat return from now to the end of the year.
Is there more upside or downside risk to your view at this point, I.
Would say there's probably more upside. The upside would be, for example, if the Federal Reserve was to cut more rapidly, more dramatically than we are, assuming the market is assuming somewhere maybe one to two cuts the golden sas economics is looking for two cuts this year. So the extent that that was to be front loaded and you saw a cut in July, that would be supportive of potentially
a higher equity market. That's not our base case. So base case is in fact that the market will trade at around this level of multiple, or in fact even lower multiple as we come towards the end of the year.
When you think about the end of the year, there are some risks ahead, particularly as you've talked about before election risk. What are the things that investors are not thinking about heading into that season At this point in time, how much volatility could there be?
Well, one interesting aspect of the election is that the volatility for the October futures contract is actually trades at a premium, but the volatility contract for November, which covers a little bit later than the actual election, trades a discount.
And so one question that is often asked is when will we actually know the outcome of the election, not so much whether it's President Biden or President Trump, but rather will this be known in a final decision on the fifth of November or is there recounts that take place in sort of uncertainty. That's a question we get from a lot of portfolio managers.
What happens after that point? You think about where volatility sits today on a spot basis, it's almost alarmingly low. Is that deceptive?
Well, there's questions that clients asked about what are the policies that may change. Will there be more tariffs, Will there be a change in the regulatory environment in terms of anti trust, what kind of environment will there be, Will Congress be the Democrat or republic in the House, in the Senate, and how will that you know?
What will the.
Result be from the election. So those are some questions we get and then ultimately as a portfolio manager, what
does one do as a as an investor? So we think about US companies that are exposed domestically from a revenue point of view as compared with companies that are exporting generate most of the revenues overseas, So that is an area that people as fund managers are more focused and we get more questions about a domestic oriented We look at companies with the exposure to anti trust and what is going to be the result both of the existing number of major suit lawsuits that are going on
now in the world of technology, and does this dissuade a lot of executives from pursuing potential acquisitions as a result of the current environment, And if that was to change, might you find greater proclivity on the part of CEOs to acquire companies? Right now, you have CEO confidence that has actually increased pretty substantially, And so that's some of the discussion points with clients.
It would be silly for me not to ask you about another thing that is starting to impact markets, and that is the return or lack there of the retail investor is mean stock mania two point zero back.
Well, we have to think of the number of stocks that we're really looking at. There are a group of stocks relatively small in number that have a lot of excitement about those but from a fundamental point of view, they tend to be relatively smaller in market capitalization and they don't affect the index as dramatically as some of the companies in the market. We think about the big flows that take place in the market, the real drivers.
There is household demand, there's mutual funds, foreign investors, pension funds, mutual funds. These are the big ownership categories. But the real net demand is coming from share repurchases on the part of companies. Companies will buy back in our estimate in the S and P five hundred close to a little more than nine hundred billion dollars of earnings, and that would be money repurchasing stock that's going to be up around thirteen percent year today.
David, we have to leave it there, hitting up a heartbreak shortly. Thank you. That is David Costin, chief US equity strategist over at Goldman Sachs