For months, we were wondering how much longer Goldman would ignore the relentless market meltup without revising its year-end S&P500 price target, which at 2,400 was not only among the lowest on Wall Street, but also some 150 points away from twhere the S&P currently is. Furthermore, as of this weekend, Goldman’s 2018 and 2019 targets for the US equity index, were 2,500 and 2,600, implying there was only 50 points of upside for the next 26 months.
All that changed today, when Goldman unveiled that quantum mechanics is not the only arena where objects can exist in superposition: it turns out the “Schrodinger’s S&P” can also have two distinct states prices at the same time, too.
In a report from chief equity strategist David Kostin, he unveils that Goldman now has not one but two price targets for the S&P500: the first one is the traditional one, the same 2,400 as noted before. However, in a plot twist, one which casts the entire role of equity strategist into question, Kostin also said that the S&P 500 price target may “perhaps be 2650” if tax reform passes.
As he explains, “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).”
Of course, the fact that it is Kostin’s job to take all these probabilities into account when making his year end price target – his one price target – seems to be lost on the strategist, who like the rest of Wall Street had no idea how far the S&P would keep rising and instead of chasing the market, has decided to just bracket it with a low and high “target.” And what better way to avoid getting pestered by angry clients at the end of the yearm than to just give them the option of picking which target they like better.
This is how Goldman gets from its baseline 2018 EPS of $139 to the higher possible scenarios, incorporating a tax plan, and boosting EPS by as much as 12%:
This post was published at Zero Hedge on Oct 17, 2017.