After 16 Months Without a 5% Market Pullback, Goldman's Clients Want To Know Just One Thing

It's confusing to be a Goldman client these days.

One month after the investment bank reported that its Bear Market Risk indicator had jumped to 67%, a level it hit most recently before the dot com bubble crash and just before the global financial crisis and prompted Goldman to ask "should we be worried now"...

... Goldman's chief equity strategist, David Kostin, nearly admitted capitulation on his bearish year-end S&P price target of 2,400 (which rises to 2,600 by year end 2019, or just 25 points from current levels!), writing last week that "the 2400 target assumes no reform and P/E of 17.3x. 65% probability of passage by 1Q." However, "with tax reform, target could be 2650 (17.9x)." Even so, Kostin still conceded that both the S&P 500 and the median stock trades at high valuations (the latter at the 98%-percentile of historical records), with the exception of free cash flow yields, which he explained is artificially low due to companies' unwillingness to spend on capex.

So on one hand, there is a broad consensus that stocks are massively overvalued, there are also concerns that the market is poised for a bear market, if not worse, and all this takes place 30 years after Black Monday. On the other however, Goldman refuses to cut its tactical outlook on stocks, and despite predicting a 6% drop by year end, cautions that stock may keep rising, if only on expectations of tax reform getting done, which will push stocks even higher, to 2,650 or more.

In this context, it is probably not surprising then that as Goldman's David Kostin writes in his latest Weekly Kickstart report that "In the ninth year of economic expansion, with S&P 500 up 15% YTD, the most common question from clients is, “When will the rally end?”

Here are the details from the latest round of conversations Goldman had with its clients, which it summarizes as "peak growth and drawdown potential."

Read the entire article