As the dust settles on the US presidential election, Goldman Sachs predicts that the US stock market will continue to rise, and the upward trend can last until at least the end of the year.
On Wednesday Eastern Time, the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 all hit historic highs, indicating that US stock investors are eagerly anticipating Trump's pro business policies such as lowering corporate taxes and relaxing regulations.
The analyst team led by David Kostin, Chief Strategist of Goldman Sachs, believes that the US stock market will continue to rise in the future. Kostin gave three reasons.
Firstly, from a historical perspective, the US stock market always tends to rise strongly at the end of election years.
Goldman Sachs stated that historically, during election years, from election day to the end of the year, the median return rate of the S&P 500 index has been 4%. And this time, if this pattern can be confirmed again, the S&P 500 index is expected to rise to around 6015 points, with an expected P/E ratio of 22 times.
Goldman Sachs analysts wrote, "With the resolution of election uncertainty, recent resilient economic growth data and continued interest rate cuts by the Federal Reserve support the recent outlook for a healthy US stock market
Secondly, as investors reallocate their funds to the stock market, the stock market is expected to rise.
Goldman Sachs stated that on the eve of the US election, investors reduced their stock exposure due to concerns about uncertainty, and hedge funds have simultaneously lowered net and total leverage in recent weeks.
Now, as political uncertainty decreases, investors may re-enter the market, thereby driving up the appreciation of the S&P 500 index.
Finally, Goldman Sachs speculates that the merger and IPO activities promoted by the Trump administration will further support stock prices.
The bank stated that the regulatory measures implemented by the Biden administration in recent years have posed challenges to corporate mergers and acquisitions, and during the Trump administration, these regulatory measures are likely to be relaxed, thereby boosting business confidence and cash expenditures.
Goldman Sachs said, "Our cash M&A model shows that after a 15% decline this year, M&A activity will rebound by 20% in 2025... A robust economy and earnings per share growth, relatively loose financial environment, and controllable stock market volatility should support economic activity
However, the bank warned that the sharp rise in the yield of US treasury bond bonds may disrupt the rebound of US stocks after the election.
In fact, with the expectation of Trump's victory in October heating up, the yield on 10-year US Treasury bonds has climbed to over 4.4%. Some people believe that this indicates that bond traders are concerned about the trajectory of the US fiscal under Trump's leadership, as he has provided almost no policy solutions for the country's growing debt.
Goldman Sachs warns that this means that if US bond yields continue to rise, it could pose a threat to the upward trend of US stocks.