According to Goldman Sachs, with Trump taking office in the White House, the S&P 500 index may hit a new all-time high by the end of the year.
On Wednesday, Trump won the presidential election, investors were pleased with his pro-business policies, and the S&P 500 index, the Dow Jones Industrial Average, and the Nasdaq 100 index all hit record highs.
Analysts led by David Kostin, the chief stock strategist at Goldman Sachs, believe there are three reasons why this momentum may continue.
Firstly, the decrease in political uncertainty after presidential elections typically drives strong year-end returns in election years.
Goldman Sachs stated that historically, the average return of the S&P index between election day and year-end is 4%. If the same scenario occurs this time, the benchmark index will rise to around 6015 points, reflecting a P/E ratio of 22 times.
"With the resolution of election uncertainty, strong recent economic growth data, and continuous rate cuts by the Fed supporting the healthy near-term prospects of the US stock market," the analyst wrote.
However, the bank warned that a sharp rise in US Treasury yields could disrupt any post-election rebound.
This could happen because with expectations of Trump winning heating up in October, the 10-year yield has climbed above 4.4%. Some believe this indicates that bond traders are concerned about the US fiscal trajectory under Trump's leadership, as he has almost provided no policy solutions for the country's growing debt.
On the other hand, Goldman Sachs pointed out that the stock market has already ignored the impact of rising yields, as signs of a strengthening economy have also pushed yields higher.
Secondly, as investors reallocate stocks, the stock market is expected to rise.
Goldman Sachs stated that investors reduced their stock exposure during the election period, and hedge funds have lowered net leverage and total leverage in recent weeks. The bank said that with reduced uncertainty, investors may re-enter the market, thereby driving the appreciation of the S&P index.
(Image Source: Goldman Sachs Global Investment Research)
Lastly, Goldman Sachs speculates that the Trump administration's strengthening and initial public offerings will further support stock prices.Mergerand initial public offerings will further support stock prices.
The bank stated that, under the leadership of the elected president, in recent years, regulatory challenges to mergers and acquisitions may be eased, thereby boosting business confidence and corporate cash outlays. It is expected that next year's $4 trillion spending will be divided between paying shareholders and investment growth.
The banks stated: "Our cash merger model indicates that after a 15% decline this year, merger activity will rebound by 20% in 2025. A strong economy and earnings per share growth, a relatively loose financial environment, and controlled stock market volatility are expected to support merger activities."
