Via Credit Suisse, now aligned with Goldman uber-bulls:
Raising S&P 500 Target to 4300 on Earnings Upside and Reopening Prospects
We are raising our 2021 S&P 500 price target to 4300 from 4200, representing10.9% upside from current levels, and 14.5% for the year. This follows an increase from 4050 on January 7 (seeS&P 500 to 4200). With 90% of 4Q earnings reported, and results topping estimates by 17%, we are adjusting our full year 2020 EPS estimate to $142.50 (previously $140). We are also raising our 2021-22 numbers to $185 and $210 (from $175 and$200). We expect P/E multiples to contract modestly in 2021, as stock prices trail explosive earnings growth.
2021: Strongest GDP in Over 35 Years
With the economy reopening, stimulus abundant, and Fed policy uber-accommodative, it is no surprise that 2021 GDP is expected to run hotter than at any time in the past 35 years (consensus: 4.9%, consensus among large banks:6.1%). Looking back further, however, we see a number of periods with similar or stronger growth. S&P 500 companies have delivered 30%+ growth 3 times in the past 35 years.
Easy Comps, Accelerating Economics and Operating Leverage Support EPS Growth
Several factors are driving the improvement in profits. Accelerating GDP should result in higher revenues (every 1% in GDP is a 2½-3% change in sales), and an even greater gain in EPSgiven operating leverage. Additionally, rising rates—a benefit to Financials—and copper and oil prices—a boon for Industrials, Energy, and Materials—further augment this favorable backdrop.
