Goldman Sachs on US stocks after rate cuts: High volatility before the election, S&P to reach 6000 points next year, mid-cap stocks are the best choice

As the US presidential election approaches, the US stock market seems to be feeling the tension as well. Goldman Sachs strategists believe that after the election results are announced, the US stock market will continue to rise.

On Tuesday, according to Bloomberg, David Kostin, chief US equity strategist at Goldman Sachs, expects the S&P 500 index to reach 6000 points in a year. This means that from the historical high of 5719 points at the close of this Monday, the index still has about 5% upside potential. So far this year, the index has risen by nearly 21%.

However, he also pointed out that in the coming weeks, as the election enters the final "sprint" phase, investors will have to experience some market volatility. Historically, this is a period of increasing volatility and falling stock prices:

"Elections are inherently uncertain, which may cause some concerns in the short term. But as the election results become clear, the stock market usually rebounds after the election."

It is worth noting that since the end of last year when he released his target price forecast for 2024, Kostin has raised his expectations for the S&P 500 index three times. Recently, due to expectations of short-term volatility from the "White House battle", he reiterated his year-end target price of 5600 points for the S&P 500 index.

Currently, Bloomberg data shows that the average target price tracked by Bloomberg for strategists is close to 5523 points. Many companies and strategists have raised their expectations this year. Goldman Sachs' Rubner even predicts that the S&P index will reach 6000 points by the end of this year after experiencing some volatility.

In addition, Kostin is bullish on mid-cap stocks, stating:

"Mid-cap stocks have long outperformed large-cap and small-cap stocks, with lower P/E ratios and higher value... Mid-cap stocks have performed well in the 3 and 12 months after rate cuts."

He also mentioned that the focus now is on mid-cap stocks, as this is an area of the market that many portfolio managers pay the least attention to, and "this is an area that really has the potential to outperform the market in the next year."

In Kostin's view, strong corporate earnings will be the main driver of stocks in the coming months, and he believes that concerns about the soft labor market data have been exaggerated.

On Tuesday evening, a report released by the US Conference Board showed that due to increased concerns about the future labor market and overall economic outlook, the US consumer confidence index for September fell sharply by 6.9 points to 98.7, below expectations, marking the largest decline since August 2021.

Goldman Sachs economists attribute the recent rise in unemployment mainly to an increase in labor supply and temporary friction caused by new immigrants, rather than a sudden drop in labor demand.

Kostin's team stated last week:

"The slowdown in labor cost growth is favorable for corporate profit margins and will have a positive impact on US stocks, especially for companies with higher labor costs ”