Goldman Forecasts Record S&P 500 Levels Amid 'Powerful Rotation' Into Value Stocks On Pfizer Vaccine Breakthrough

Goldman Sachs issued a major call for the S&P 500 this year and next Wednesday, forecasting record highs for the U.S. benchmark amid what it calls a "powerful tactical rotation" into value stocks.
Author:
Publish date:

Goldman Sachs  (GS) - Get Report analysts are forecasting record highs for the S&P 500 this year and next, with the broadest measure of U.S. equities expected to rise by more than 1,000 points by the end of 2022 amid a "powerful tactical rotation" into value stocks. 

Lead analyst David Kostin argues in a client note published Wednesday that Pfizer Inc's  (PFE) - Get Report coronavirus vaccine breakthrough, revealed earlier this week to a have a more than 90% efficacy rate in fighting the deadly disease, will provide a tailwind to U.S. stocks that is more important than the prospective policies of an administration lead by President Elect Joe Biden.

In a client note published Wednesday, Goldman said stronger-than-expected third quarter earnings, a divided Congress that leaves little scope for major legislative changes and the impact of the Pfizer vaccine, has allowed for an improved year-end point target of 3,700 for the S&P 500, which the bank says will be followed-up by a 16% gain in 2021 and a further 7% advance in 2022 that will take the U.S. benchmark to 4,600 points by the end of 2022.

"The vaccine announcement by Pfizer provided evidence that a path to normalization exists, which should serve as a catalyst for Value stock outperformance," Kostin's team wrote. "We expect the emergency use authorization (EUA) and distribution of an effective vaccine during the next several months will lead to significant upward earnings revisions for virus-exposed firms and help give investors confidence to rotate into those low-valuation stocks."

Goldman's call is predicated on at least one of the dozens of late-stage coronavirus vaccines receiving approval from the Food & Drug Administration before being administered to a large portion of the U.S. population next year, as well as Republican control of the Senate following early January run-offs in Georgia.

Goldman also said it needs to see a continuation of the so-called V-shaped recovery in the broader economy, a sharp rebound in S&P 500 profits from their pandemic lows, a steeping yield curve anchored by stable 10-year Treasuries and consistent near-zero interest rates from the Federal Reserve. 

And while tech stocks delivered the lion's share of gains in 2020, Goldman argues that even though the biggest names -- Facebook  (FB) - Get Report, Apple  (AAPL) - Get Report, Amazon  (AMZN) - Get Report, Microsoft  (MSFT) - Get Report and Google  (GOOGL) - Get Report -- account for an 'unprecedented" 22% of the S&P 500's market cap and 48% of year-to-date returns for the benchmark, their 2021 performance won't dictate broader market returns. 

 "The FAAMG stocks have performed so well this year because of their long-duration secular growth profiles, which have become increasingly valuable  alongside plunging interest rates, and business models that are insulated from or even beneficiaries of the pandemic’s effects on economic activity," Goldman said. 

"As a result of these qualities, the announcement by Pfizer of an efficacious vaccine supported the economic growth outlook and lifted interest rates, resulting in the FAAMG stocks underperforming more cyclical, shorter-duration peers."