Goldman predicts a big run-up in S&P
As earnings have been largely better than expected for the second quarter, many analysts have started to offer sunnier estimates of how the stock market will do in the balance of the year. Some forecasts have been downright bullish.
According to Bloomberg, "Goldman Sachs Group Inc. boosted its forecast for the Standard & Poor 500 Index, saying improving earnings will spur the steepest second-half rally since 1982." The firm's new target for the index is 1060, a massive increase over its previous forecast of 940.Of course, there is a lot of rough ground to be covered between now and the end of the year, and some bank analysts have argued that Q2 earnings won't be repeated because many companies' bottom lines were improved by one-time items. Poor credit quality could push these financial firms back into the red for the rest of the year.
Earnings for many other sectors, especially those which depend on consumer spending, could actually get worse as the year wears on and unemployment moves above 10 percent.
Most economists expect an end to the recession late this year or early next. However, government borrowing may well push up interest rates, crude prices are moving up again, and joblessness is impossible to overlook as a massive drag on GDP.
In other words, Goldman is putting an awful lot of eggs in the earnings basket.
Douglas A. McIntyre is an editor at 24/7 Wall St.