“As the last few months have demonstrated, equity prices depend on not just the expected future stream of earnings but the rate at which those earnings are discounted to present value,” Kostin wrote in a note Friday. “Looking forward, a falling equity risk premium will outweigh a rise in bond yields, and combined with our above-consensus EPS forecast, will lift the S&P 500 Index to 3,600 by year-end.”
See strategists’ year-end forecasts for the S&P 500, as of mid-July, here.
Large stimulus injections have fueled the climb in the S&P 500 since the March sell-off sparked by the pandemic. The gauge briefly surpassed an all-time high last week, helped by better-than-expected economic and earnings data, and optimism about an early roll out of a vaccine.
Kostin said the US election remains a significant risk to his prediction because of challenges in tabulating results in Covid-19 times. Though “the largest risk to our forecast is the timing of a vaccine and path of recovery from the pandemic,” he said.
