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Why Goldman Sachs Is Optimistic about US Equities


Mar. 13 2018, Updated 5:15 p.m. ET

Goldman Sachs on US equity

In the previous two parts, we discussed David Kostin’s views on various risks to market movement. He also shared his view on the US equity market’s 2018 outlook.


According to Kostin, US companies will see spectacular net profit margins as a result of tax reforms. The margins of various S&P 500 Index companies will be higher in 2018, as the tax rate will be lower.

According to estimates from Goldman Sachs (GS), the capital expenditure growth rate of the S&P 500 (SPY) will rise 11% in 2018. The cash spending growth rate of the S&P 500 companies will reach 15% in the same year. According to the investment firm, shareholders of S&P 500 companies will receive a total of $1.2 trillion. The cash dividend will also grow 15% in 2018.

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The broader market S&P 500 Index (SPY) is trading at a forward price-to-earnings multiple of 18.3x, which is higher than the historic average of 15x. However, Kostin believes that tax reform is supporting the S&P 500 index’s valuation. The S&P 500 Index may see earnings growth of 14% in 2018. The SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500 Index, returned 4.4% between December 21, 2017, and March 9, 2018. Congress passed the tax reform bill on December 21, 2017.

In the next part of this series, we’ll analyze how Goldman Sachs views the protectionism approach and the market.


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