GOLDMAN: For the stock market, 'flat is the new up'

Goldman Sachs’ chief equity strategist David Kostin doesn’t think stocks are going anywhere for the rest of the year.

In a note to clients over the weekend, Kostin and his team outlined 4 main reasons why the S&P 500 probably won’t do much of anything for the rest of the year and finish at 2,100.

On Monday morning, futures were indicating the S&P 500 would open at around 2,085.

The 4 pillars of Kostin’s argument are:

  1. The S&P 500 already trades at “fair value.”
  2. Earnings will be essentially flat this year.
  3. US stock exchange-traded funds have seen net outflows this year, a reversal of recent years when money moved out of active mutual funds and into passive ETFs.
  4. The US economy will continue to grow at a so-so pace of around 2.6% in the second half of this year.

At the start of the year, Kostin was one of the most cautious strategists on Wall Street, calling for the S&P 500 to finish the year at 2,100, a modest gain of around 5% after 3 straight years of double-digit advances for the benchmark index.

Through the first half of the year, the S&P 500 has been about flat, rising 1.5%.

Tom Lee of Fundstrat, one of the biggest stock market bulls on Wall Street, wrote in a recent note to clients that the last time stocks in the US were this flat for the first 2 quarters of the year, they rose 43% over the next 2 quarters.

But that was 1904, and this is now, and as Goldman’s Kostin wrote in his note: “Flat is the new up.”

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