Goldman Sachs Warns U.S. Stocks Are Now Reaching Peak Optimism
by Julie Verhage
February 21, 2017, 12:39 PM EST
Peak optimism is fast approaching.
Goldman Sachs Group Inc. says the surge in confidence following Donald Trump’s November victory is reaching an inflection point. Investors counting on tax cuts and an economic boom to fuel a surge in corporate profits are getting ahead of themselves, according to the bank.
“Financial market reconciliation lies ahead,” David Kostin, Goldman’s chief U.S. equity strategist, wrote in a note. The “S&P 500 Index will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected.”
Kostin and his team pointed out that while corporate earnings estimates for 2017 have fallen by 1 percent since the election, the S&P has surged 10 percent. Something has to give, they say.
It’s not just stock markets that have turned sanguine. Measures of confidence that started shooting higher in December have either continued climbing or held most of their gains. According to the National Federation of Independent Businesses’ monthly survey, executives have the strongest outlook in more than a decade.
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