Goldman Sachs reviews stock targets after Fed interest rate cut

The stock market has soared this year, with the S&P 500 index hitting forty one closing highs and jumping 20%.

The market’s most up to date boost came from the Federal Reserve, which last week slashed interest rates by one-1/2 percentage point. Lower rates most often stimulate the economy, thereby boosting corporate earnings.

JoAnne Feeney, a veteran portfolio manager at Advisors Capital ($Eight billion of assets below management), is optimistic in regards to the economy. It’s “in pretty good shape,” she wrote in a commentary.

More rate cuts are expected. Those reductions will lend a hand stocks this time around, but not the total way through the usual way, she said.

Historically, once the Fed starts lowering rates, value stocks outperform growth stocks, and defensive stocks outperform cyclicals. But that has most often befell when the Fed cut rates right into a weak economy, Feeney noted.

Fund manager says bring to mind companies that borrow

Now, rate cuts will benefit companies that rely on borrowing. That features small companies, technology companies and biotech companies, she said. “Those firms most reliant on sourcing external financial capital will likely gain the foremost.”

Other sectors poised to thrive are industrial, health-care and consumer discretionary stocks, Feeney said. Laggards will likely consist of consumer staples and utilities.

Related: JP Morgan's Jamie Dimon offers surprising view on economy

Earnings from the S&P 500 companies surged eleven.3% the total way through the second quarter from a year earlier, consistent with FactSet. While analysts predict that growth to decelerate to Four.6% the total way through the 1/3 quarter, that’s still an extraordinary number.

But bears see pitfalls on the horizon, contending that stocks are overrated. As of Sept. 20, the S&P 500 traded at 21.Four times analysts’ earnings forecasts for the following 365 days. That’s well above the 5-year average of 19.5 and the ten-year average of 18.

Economist David Rosenberg is negative on stocks, economy

Veteran economist David Rosenberg is most often bearish on equities, and that’s indubitably the case now. “The stock market is already in a cost bubble,” he told MarketWatch.

“There’s a really extensive number of optimism being priced in about what earnings are going to deliver over the following couple of years. Stock investors has to fret about recession and a lower earnings stream.”

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Within the event you may possibly like to be going to buy stocks anyway, “you be in sectors that perform well in a period of slower growth, lower inflation and lower interest rates,” Rosenberg said.

That features utilities, telecom products and services, real estate, financials and dividend-paying growth stocks with high payout ratios, he said.

Goldman Sachs mildly bullish on stocks

Meanwhile, Goldman Sachs strategists, led by David Kostin, are mildly bullish on stocks. "With [price-earnings] multiples flat, earnings growth will lead the S&P 500 modestly higher,” they wrote in a commentary earlier than the Fed’s rate cut.

On Sept. 24 Kostin, Goldman’s chief U.S. equity strategist, confirmed Goldman’s pre-rate-cut forecasts for stocks in an interview with Bloomberg.

Related: Leading edge lays out key investing strategy after Fed rate cut

That features a year-end target of 5,600 for the S&P 500 and a 12-month target of 6,000. The latter represents a 5% gain from Wednesday’s level of 5,720.

Kostin likes midcap stocks, as they outperform large-cap and small-cap stocks future, have lower valuations and aren't noted by portfolio managers. “That’s a neighborhood that in point of fact is probably going to outperform over the upcoming year,” he said.

Related: Veteran fund manager who as it'll be forecast stock drop updates outlook