When it comes to US stocks, Goldman Sachs says the best place to be invested right now is 'none of the above'

Photo by Streeter Lecka/Getty Images

On Friday US stocks got pummeled, logging their largest one-day decline since the UK Brexit referendum.

The decline came out of the blue, waking markets abruptly from their Fed-will-do-nothing-this-year slumber.

Even after a 2.45% decline on Friday, the S&P 500 isn’t a bargain by any stretch of the imagination, says David Kostin, chief US equity strategist at Goldman Sachs, suggesting in a note on Friday that the index will close out the year at 2,100 points.

It currently sits at 2,127.81.

In his view, when it comes to where investors should be invested in the market, he muses that the best answer right now is “none of the above”.

He cites sentiment indicators, election uncertainty, mixed economic data, negative EPS revision risk and high valuations as factors that add to downside risk. These are offset, says Kostin, by supportive factors such as the likelihood of a patient Federal Reserve (although Goldman is forecasting a rate hike in 2016), still-low bond yields and buyback authorisations from firms.

While he is forecasting that the S&P 500 will finish 2016 slightly below where it currently sits, Kostin expects the elongated grind higher for stocks will continue in the years ahead, forecasting that it will close 2017 at 2,200 before rising to 2,300 in 2018.

This chart shows Goldman’s forecasts for operating earnings for S&P 500 firms out to 2019, along with its end of year forecasts for the actual index.

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