Goldman Sachs strategist lays out surprising view on stocks

Stocks rose Friday, as stronger-than-expected jobs data spurred investor enthusiasm concerning the economy.

A sturdy economy means strong earnings, which implies rising share prices. Non-farm payrolls rose 254,000 in September, up from 159,000 in August. And the unemployment rate dipped to four.1% from four.2%.

Do not leave out the move: Subscribe to TheStreet's free day to day newsletter

The buoyant numbers argue for a soft landing for the economy, many experts say. That’s a continued reduction of inflation and not using a downturn for the economy.

That sentiment is boosting stocks. “Markets can have self belief to maintain their most modern euphoria and continue broadening out,” Lara Castleton, U.S. head of portfolio construction and strategy at Janus Henderson, wrote in a commentary.

The euphoria stems from the S&P five hundred’s climb to Forty three record closing highs this year. And the “broadening out” refers to the rally’s spread beyond huge technology companies.

“We must always be wary, on the opposite hand, of putting too a lot emphasis on one jobs print, specifically given the hot trend of downward revisions,” Castleton said.

Jobs numbers will likely make Fed less dovish

The employment data should keep the Federal Reserve from cutting rates of interest by 50 points in November since it did in September, experts say. Interest-rate futures point to a ninety seven% probability that the Fed will trim rates by 25 basis points at its next meeting – and a three% chance of no move.

“The Fed will breathe a sigh of relief to see job growth percent up in September after a soft patch right through the summer,” said Bill Adams, chief economist for Comerica Bank in Dallas.

Stock bulls and bears can both make hay out of the view that the Fed will lower rates in precisely small amounts. Bulls can argue that smaller rate cuts are an indication of strength right through the economy.

Related: Veteran fund manager highlights lurking stock market risk

And bears can argue that rate cuts in most cases boost stocks, so the smaller the speed reductions, the lower the benefit for stocks.

Meanwhile, earnings and valuations present a mixed picture for the market.

Analysts are taking a look ahead to earnings per share for the S&P five hundred to increase four.2% right through the 1/3 quarter from a year earlier, in step with FactSet. That may represent a slowdown from eleven.three% right through the 2nd quarter, but it no doubt’s still a fine number.

Still, valuations look extended. As of Oct. four, the S&P five hundred traded at 21.four times analysts’ earnings estimates for the following 365 days, FactSet says. That’s well above the 5-year average of 19.5 and the ten-year average of 18.zero.

Nationwide is ebullient on stocks

One expert who’s bullish is Mark Hackett, chief of investment research at Nationwide, the financial products and services company. He too cites the broadening of stocks so that you should be climbing.

Over the last two months, the proportion of companies right through the S&P five hundred which have outperformed the index is the absolute best in 30 years, he said.

Related: Goldman Sachs' S&P five hundred targets after Fed rate of interest cut

In addition to, “investor sentiment is robust, but now no longer excessive,” Hackett wrote in a commentary. The Bank of The usa of a Bull & Bear Indicator stands at 6.zero (on a scale from zero-10), up from 5.four last week.

“That’s the biggest increase of the year, based on strong flows and supporting credit market technicals,” he said.

Goldman's Rubner is enthusiastic too

Scott Rubner, managing director for global markets at Goldman Sachs, is optimistic about stocks too. For the following three weeks, he expects heavy volatility, as stock supply tops demand.

But “I am bullish on equities for a year-end rally starting on Oct. 28, and I am worried that my 6,000 target is solely too low,” he wrote in a commentary Wednesday cited by Bloomberg.

Fund manager buys and sells:

• Experts cite stocks to purchase after Fed rate cut
• Cathie Wood divests $23 million of surging tech stocks
• Top value fund manager says Alphabet is deep-value stock

That level would represent a four.three% climb from Friday’s close of 5,751.

One major explanation for Rubner’s enthusiasm: Since 1928, the S&P has risen four% on average from Oct. 27 through year-end, Rubner said. In addition to, investors switch from cash to stocks after the uncertainty of presidential elections fades, he said.

To verify that, Rubner's S&P five hundred year-end target tops the 5,600 of Goldman’s chief US equity strategist David Kostin.

Related: The 10 best investing books, in step with our stock market pros