The Economic Branch of the U.S. government is out with an upgrade of the overall market. Goldman Sachs now expects the S&P 500 to rise 15% from current levels to 1060. This is no doubt giving the market a boost today. Goldman writes:
Improvement in ex-financial earnings per share, stabilization in profit margins and higher forward EPS guidance all point to a rising market through 2009. Many of the large-cap banks exceeded analyst expectations due to strong capital markets and mortgage refinancing activity. We expect these sources of earnings strength to continue.
We have experienced the brief euphoric one-month “pop” phase of the typical equity market recovery from a bear market low (27% rally from 667 to 850), endured the characteristic several-month long range-bound “stall” period (10% range from 850 to 940), and now we anticipate a more extended “sustained rally” in the U.S. equity market during the second-half of 2009.
Although earnings, valuation, and money flow offer support to our view that the S&P 500 will experience a more sustained rally during the second-half of 2009, the fourth pillar of our analysis — the U.S. economy — is the shakiest part of the foundation.
They are no doubt talking their book. This just happens to be a highly influential book….