Snider: There's still more gains ahead for equities, even with the S&P at all-time highs

Goldman Sachs' Market Outlook: A Summary

Key Concepts:

• S&P 500 Price Targets
• Earnings as Market Driver
• Tariffs and Margin Protection
• Dollar Weakness vs. Equity Performance
• Resilient Labor Market
• Alternative Asset Managers (Ares, Apollo, Brookfield, Blackstone)
• Retail Investment in Alternatives
• Mega-Cap Tech (Nvidia) and AI Trade

S&P 500 Price Target Revision

Goldman Sachs is raising its S&P 500 price targets, projecting further gains despite current all-time highs. The new targets are:

• 12-Month Horizon: 6900, indicating a double-digit percentage increase (approximately 11%) from the current level.
• End of 2025: 6600, the highest among peers like Wells Fargo (around 6000).

The core message is that despite a 25% rally in recent months, there's still upside potential for equity investors.

Earnings as the Primary Market Driver

Earnings are identified as the most critical factor influencing stock performance. This perspective remains consistent with previous analyses. The key question is the extent to which tariffs will impact the earnings outlook. The upcoming second-quarter earnings season will be crucial, with investors needing to focus on companies' strategies for protecting margins amidst increased tariff rates.

Tariffs and Margin Protection

Tariffs initially caused market nervousness, evident in the April lows. While the market seems to be "shrugging them off" currently, their impact on corporate earnings remains a significant concern. Companies' ability to protect their margins in the face of tariffs will be a key determinant of market performance.

Dollar Weakness and Equity Rotation

The concern that dollar weakness could lead to a rotation away from U.S. equities is acknowledged. However, conversations with asset managers and CEOs suggest continued confidence in the outlook for U.S. stocks. Portfolio adjustments are being made through currency strategies rather than direct equity sales.

The Resilient Labor Market

The weekly jobless claims, released every Thursday morning at 8:30 AM New York time, are considered the best high-frequency indicator of the labor market's health. The labor market's resilience, despite political and market volatility, is a key factor supporting the equity market. Economists anticipate continued signs of strength in the labor market.

Quote: "As long as the labor market remains resilient, the equity market should too."

Alternative Asset Managers: A Bullish Outlook

Alternative asset managers (Ares, Apollo, Brookfield, Blackstone, etc.) are highlighted as a promising sector. The rationale includes:

• High Growth and Improving Prospects: These companies exhibit strong growth potential.
• Underperformance in the Market Rally: Despite the S&P 500 reaching record highs and increased IPO and M&A activity, these stocks are trading approximately 20% below their prices from earlier in the year.
• Post-Election Thesis: The initial enthusiasm following the election, based on the expectation that higher asset prices and capital markets activity would benefit these stocks, is now materializing.

Retail Investment in Alternatives: An Unpriced Tailwind

The potential for increased retail investment (accredited investors) in alternative assets is considered an unpriced tailwind. While the impact is uncertain, it could provide further support for these stocks if it materializes. Individual investors must consider various factors before investing in alternative assets.

Mega-Cap Tech and the AI Trade

Nvidia's market capitalization briefly surpassing $4 trillion underscores the strength of the AI trade. This aligns with previous discussions about the continued momentum in the AI sector.

Conclusion

Goldman Sachs maintains a bullish outlook on the U.S. equity market, driven by strong earnings potential and a resilient labor market. While tariffs and dollar weakness pose potential challenges, the firm believes that companies' ability to protect margins and continued confidence in U.S. stocks will support further gains. Alternative asset managers are identified as a particularly attractive sector with significant upside potential. The AI trade remains robust, as evidenced by the performance of mega-cap tech companies like Nvidia.