At the beginning of September, in a presentation stretching across 102 slides, Goldman Sachs Group Inc (NYSE:GS) presented its case for where the bank believes investors should be putting their cash in the current market. Goldman has three critical debates that are driving three investment themes. The three debates are as follows:
Goldman expects the Fed will hike in December. The bank’s analysts note that P/E multiples have historically compressed by 8% during the 90 days after initial tightening but recover soon afterward.
On most metrics, the S&P 500 currently trades at a fair value. The median stock has a forward P/E multiple of 16x, the 83 rd percentile since 1976
The market is plagued by a low return dispersion. Mutual and Hedge Funds typically lag during low dispersion regimes.
And these three debates form the basis for the bank’s three key investment themes going forward. The themes are:
Own stocks with high domestic sales.
Own large-cap stocks with safe balance sheets.
Own stocks returning cash to shareholders via buybacks and dividends.
Alongside these key observations and trends, Goldman believes the S&P 500 will rise by 5% to end 2015 at 2100 based on historic market performances usually seen after an emerging market sell-off.
Goldman: Where to invest
Goldman presents its argument of where to invest and the reasoning behind the bank’s belief that the S&P 500 will return to 2,100 by the end of the year in a presentation consisting of 102 sides. Clearly, there’s not enough room to cover the whole argument within one article, so here are the key points.
First off, the market’s valuation. Goldman believes, like many other market participants, that the market is currently overvalued on several metrics, as shown in the slide below.
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