Why Goldman Sachs Is Optimistic about ‘Secular Growth’ Tech
GS equity strategist David Kostin on CNBC
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David Kostin on US economy
Goldman Sachs’s David Kostin said in the interview that the US economy is growing at a moderate pace—not too fast, and not too slow. His firm expects the US economy (SPX-INDEX) (COMP-INDEX) to grow at a rate of 2% in 2017.
Proposed tax reform and infrastructure investments drove market movement in early 2017, but the investment firm believes these reforms won’t actually come to fruition in 2017. Kostin said that 2018 could be an important investment year, however, given the higher potential for such reforms to materialize.
Secular growth stocks—if the economy speeds up
If the economy (QQQ) (IWM) starts running at a higher speed, investors would need to start looking at growth stocks. Kostin believes that the Fed may raise the federal funds interest rate two more times in 2017, and, of course, the expectation of rising inflation is also increasing, which indicates moderate economic growth. For this reason, Kostin is advising investors to look at “secular growth” technology stocks.
As opposed to cyclical stocks, investors prefer secular growth stocks when they believe economic activity will continue over a long period of time. Kostin believes that the demand for technology will stay high among consumers during the current moderate growth environment.
Kostin on GDP
Kostin also noted that if the economy can show 2% real GDP growth along with a 2% inflation rate, the revenues of some key companies could grow at a rate of 4%, and some might see 5% earnings growth. Of course, this kind of growth in revenue could help various technology companies (XLK) to a large degree.
In the next part of this series, we’ll discuss what Goldman Sachs’s David Kostin had to say about market volatility.