The S&P 500 is poised to gain another 4% by year-end on top of the 20% it has already posted, according to Goldman Sachs' strategists.
Primarily, they credit the TINA effect — there is no alternative.
"When allocating capital, the alternatives to equities appear unattractive," wrote Goldman strategists led by Chief U.S. Equity Strategist David Kostin in a recent report that targets 4,700 for the S&P 500 by year-end.
Cash yields are almost nil, Treasury yields are low and heading slightly higher, which will depress Treasury prices, and investment grade and high yield corporate bond spreads to Treasuries are expected to widen, reducing their allure.
Moreover, more than half of S&P 500 stocks have annualized dividend yields greater than that of the investment grade index, which means that the owners of those stocks are earning more income from than owners of the average investment-grade bond.
Against this backdrop, the Goldman strategists expect that some of the $19 trillion in cash held by households, mutual funds, pension funds and foreign investors — $4 trillion more than before the coronavirus pandemic — will be deployed into stocks, adding to the current record high aggregate equity allocation among those four investor groups.
