Now that the S&P 500 has touched yet another record high, the stock market indicator may have nowhere else to go for the next 12 months, says Goldman Sachs.
The index may climb a bit higher before its rise is over at least for the next 12 months, analysts say. Strategist David Kostin and his team see the index rising to 2,150 in the next couple of months - another 1 percent or so from its mid-day levels Monday - before seesawing around and ultimately settling around 2,100 by year's end.
According to the analysis, the next 12 months hold little prospect for gain with the index at just 2,125 in 12 months, which would be basically flat from here.
The estimate comes as Wall Street deals with slower economic growth and a backdrop in which the Federal Reserve will have to weigh its desire to increase interest rates against weakening data.
The body sticks to a view that the Fed will hike in September, but futures market traders now count for only a 52 percent chance the central bank will tighten even in December, with just a 20 percent for a September move, CNBC reports.
In addition to the weak growth and Fed uncertainty, basic valuations will also constrain the market. The average stock in the S&P 500 is trading at a price-to-earnings multiple of 18.2, which puts it in the 99th percentile historically, Goldman says.
While returns are shrinking, investors could
have little else but dividends to count on.
Goldman suggests that all of the 2 percent gain in total return by the end of the year will come from dividends, which are expected to account for 46 percent of market returns for the next decade. Prices, by contrast, have accounted for 80 percent of total return during the current bull market, which has seen the S&P 500 climb about 220 percent since the March 2009 low.
According to Kostin, during the next two years, the median S&P 500 stock is expected to increase its dividend by 8 percent annually. "However, with record levels of cash on corporate balance sheets, many firms are increasing dividends at a much faster clip," he added.
Goldman expects market returns over the next 10 years to be 5 percent yearly and recommends investors to concentrate on dividend growth stocks.
Some of the firm's top stocks it holds in a basket of such companies
include Ford Motor, Coca-Cola, Pfizer, Lockheed Martin and Verizon, CNBC says referring to Goldman.
