The American Stock Market Index, the S&P 500 Index, is trading close to its fair value. It has already climbed 19% this year, says Goldman Sachs Group Inc. There appears to be limited upside left for the index.
Goldman Sachs Group strategists, which included David Kostin, wrote a note to their clients detailing information about the return on equity. As they said quoted by Bloomberg:
The path forward for index ROE is likely to be challenging, although lower interest rates and lower tax rates may provide support. Revisions to earnings-per-share forecasts for 2020 have been negative, and the upside potential will be limited due to “policy uncertainty.”
In July, American equity benchmark gauges have reached heights never encountered before. Investors were betting that the interest rate cuts by the Federal Reserve will stave off a significant downturn in the economy. For the Federal Open Market Committee meeting on July 30 and 31, traders are pricing a full quart-point cut.
Goldman Sachs Group strategists stated: “The S&P 500 index trades near fair value relative to interest rates” and added how it was also appropriate too relative to historical price-to-book valuations and profitability.
Goldman is advising its clients to buy stocks with an REO growth that is the fastest expected. Return-on-equity is a measurement of how profitable something is and is worked out by sharing the net income amount by the shareholders’ equity.
Goldman Sachs Group has fifty S&P 500 stocks, which have high estimates for ROE growth. So far this year, it has outperformed S&P 500 by a considerable five percentage points.
Included in the members’ socks are Under Armour, Cisco, Apple, Global Payments, and Sempra Energy.
This basket of 50 will typically outperform in environments of weakening growth since investors add a scarcity premium to companies that can expand return-on-equity even with index-level headwinds.