The discussion about whether the markets were at the top lasted an entire day, after Tuesday’s recovery put the bears back in their dens. Positive news about the vaccine could broadcast Wednesday’s session.
Looking a little further are the strategists at Goldman Sachs, led by David Kostin. They estimate that the S&P 500 SPX,
It will generate 6% average annual returns, including dividends, over the next 10 years.
Not bad, right? Of course, any long-term forecast is subject to considerable uncertainty, and returns between 2% and 11% capture a standard deviation around their average estimate, Goldman strategists say. Goldman did a similar exercise in July 2012 and forecast a return of 8%, compared to the actual increase of 13.6%, which was more than a standard deviation away.
How did the Goldman team get to 6%? They analyzed five factors: current absolute and relative valuations, capital allocations, dividend yield estimates, and the economic model. To make the long story short, the cyclically adjusted price / earnings ratio is a high 26.5, but the interest rates are incredibly low.
Perhaps the most notable idea is that stocks have a 90% chance of beating bonds, since the 10-year Treasury TMUBMUSD10Y,
produces a negligible 0.63%.
Goldman highlighted five risks to the prospects. One is deglobalization, which puts both sales and profits at risk. Another is taxes, and current presidential candidate Joe Biden’s plan involves a 12% drop in S&P 500 earnings, if implemented. Labor costs, demographics, and the composition of the index (the S&P 500 has averaged 35% turnover per decade since 1980) are also risks.
The buzz
Modern Biotechnology Group MRNA,
He said his coronavirus vaccine candidate produced a “robust” immune system response in a larger group of people, and the study will move to a landmark clinical trial in July. Separately, a UK television announcer said positive news about the AstraZeneca AZN-backed Oxford University vaccine,
can be released
Positive test rates for coronavirus in the United States have held steady at around 8%, although the new death toll rose sharply on Tuesday.
Apple AAPL,
he won his court case against the European Commission, and the General Court of the European Union ruled that Ireland did not provide state aid to the tech giant. The decision means Apple won’t have to pay $ 15 billion in back taxes to Ireland.
Wednesday’s earnings wave features health insurer UnitedHealth UNH,
who reported earlier-than-expected earnings and more results for the financial sector, including Bank of New York Mellon BK,
Goldman Sachs GS,
and PNC PNC,
Analysts at Bespoke Investment Group say the big banks that reported Tuesday took provisions for credit losses equal to 15% of their market capitalization, giving a potential boost if their clients’ actual losses are even slightly less than the expected.
Industrial production, which did not recover as much in May as retail sales, will launch, along with the Empire State Manufacturing Index and the Federal Reserve Board’s Beige Book of Economic Anecdotes.
The markets
After Tuesday’s 556 point gain in the DIA Jones Industrial Average DJIA,
US Stock Futures ES00,
YM00
they were aiming higher again.
CL.1 oil futures,
outperformed the meeting of the Organization of the Petroleum Exporting Countries.
GC00 Gold Futures,
relieved
The graphic
This chart, from Acadian Asset Management, shows the best and worst performing assets over four consecutive years since the mid-1970s. “From this perspective, the recent superior performance of large cap growth does not seem particularly unusual in duration or magnitude, “says the fund manager. “Also, the chart reminds us that recent highlights can quickly become underperforming as conditions change.”
The tweet
The daughter of the president and senior White House adviser held up a can of Goya beans, “The Price Is Right” style, which made the game show trending on Twitter, too. Goya’s chief executive generously praised President Donald Trump, prompting calls for a boycott of the food company. Not to be outdone, Ivanka Trump’s brother Donald Jr. tweeted that former Vice President Biden couldn’t beat his younger brother Barron in a debate.
Random readings
Former Attorney General Jeff Sessions lost his candidacy for the Republican nomination for the Senate seat he used to hold in Alabama.
New works of art inspired by graffiti artist Banksy’s coronavirus have appeared on the London Underground system.
Hit the road: An unusual white dwarf star has been sent at full speed through the Milky Way galaxy.
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