Strategist Jonathan Golub, who recently moved to Credit Suisse from RBC Capital, just unveiled his outlook for the stock market in 2018. And it’s bold.
Golub sees the S&P rallying to 2,600 by the end of this year and surging to 2,875 by the end of 2018. The price targets imply a robust 10-11% annualized return.
And the still-tepid global growth isn’t a concern for Golub. In fact, he noted it has benefited the business cycle by extending it.
“Global growth has been tepid for over a decade on challenging demographics and other macro forces,” Golub said. “While a headwind for revenues, this has created a greater corporate focus on expenses and a more abundant return of capital to shareholders, and has pushed discount rates low.”
Golub said he assumes the US and global economies will continue on a slow and steady growth path (with US GDP of 2 to 2.25%) for the next 18 to 24 months, and that a tight labor market will begin to put upward pressure on inflation, interest rates and margins.
Meanwhile, Golub said that recessionary risks are “well contained.”
Despite elevated multiples, technology is Golub’s favorite sector.
“Fundamentals remain strong given the group’s exposure to secular growth themes in subgroups such as Internet and software-as-a-service,” he said.
Meanwhile, he sees financials outperforming, with deregulation providing an important tailwind.
On the other hand, Golub is pessimistic about bond proxy stocks — stocks that offer a generous dividend — given “uninspiring fundamentals” along with their propensity to lag during periods of rising yields.
Nicole Sinclair is markets correspondent at Yahoo Finance
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