AI Sentiment: Bullish
Reason: Despite concerns over inflation and geopolitical tensions, Goldman Sachs maintains a bullish outlook for the S&P 500 due to strong earnings growth, high cash levels held by households, and strong corporate buybacks.
Investors' animal spirits could drive the S&P 500 to new heights, according to Goldman Sachs. The bank's strategists have suggested that the current market situation gives room for the S&P 500 to rise to 4,900 by the end of 2023, which would be a growth of roughly 25% from its current levels. This prediction comes in spite of ongoing concerns about inflation and geopolitical tensions.
The "animal spirits" term, famously coined by economist John Maynard Keynes, refers to a sense of optimism or confidence that encourages people to take risks in the pursuit of profit. The bank's strategists believe that these spirits are likely to be stirred by expectations of strong earnings growth and the Federal Reserve's steps to tackle inflation.
Goldman Sachs also highlighted the high levels of cash held by households, which could provide a significant boost to the stock market if some of that money is invested. Additionally, the bank pointed to the potential impact of corporate buybacks, which are expected to remain strong in 2023.
However, the bank also noted several risks that could potentially derail this optimistic scenario. One of these is the inflation rate, which has been rising at a pace not seen in several decades. Another risk is the possibility of a more aggressive monetary policy tightening by the Federal Reserve than what is currently anticipated.
Despite these risks, Goldman Sachs maintains a bullish outlook for the S&P 500. The bank's strategists believe that the index's earnings growth, combined with the high levels of cash held by households and strong corporate buybacks, will help to drive the S&P 500 higher over the next two years.