S&P 500 Set To Rally To 2,400 In Q1 But Fall By End Of 2017: Goldman

The S&P 500 rallied sharply again on Tuesday, surpassing 2,270 after rising by more than 4% in about a month and more than 6% in three months. Year to date, the S&P 500 has returned 13%. Call it a Trump rally or a Santa rally, but many analysts think the bull run will continue into next year.

S&P 500 could surpass 2,400

Goldman Sachs analyst David Kostin and team said in their latest “US Weekly Kickstart” report that they expect the S&P 500 to reach 2,400 in the first quarter but to end next year at 2,300. The index gained 0.7% last week, with Health Care gaining the most of all the sectors at 2.7% and Real Estate being the worst-performing sector by sinking 1.3%.

Avi Gilburt, who shares his views on The Trading Deck (via MarketWatch), has set his next target for the S&P 500 at 2,350. He feels the index will continue to be biased toward the bullish end if it remains higher than the 2,205 to 2,220 support region. He has long been calling for a target of between 2,537 and 2,611 for next year, even when almost everyone else was focused on the February crash.

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This week he lowered his upper support for the S&P 500 to 2,205 for the bull market, although he retained his high targets.  Moving into 2017, he expects the support region to rise until the index finishes five full waves off its February low. As a result, he’s not predicting the next big correction until 2018, when he looks for a 15% correction moving into 2019. Like Gilburt, Deutsche Bank is also looking for the index to soar past 2,500.

Goldman rebalances basket

Kostin and team have rebalanced their High Sharpe Ratio basket, which has outperformed the S&P 500 this year with a 23% return.

The basket is made up of stocks that have the “highest prospective risk-adjusted returns and has beaten the S&P 500 by 71% of the time since 1999. The Goldman team has added 39 new stocks to the basket, including Alphabet. Only one other FANG stock is in the basket, which is Facebook. Interestingly, they also added Yahoo, PayPal and Activision Blizzard to their Sharpe Ratio Basket.

They feel that investors should keep focusing on risk-adjusted returns next year. They rebalance the basket in June and December.