Thursday, January 13, 2011

Goldman: S&P 500 to Gain 18 Percent in ‘Decent’ Year for Bonds

Goldman Sachs Group Inc., Wall Street’s most profitable investment bank, predicts the Standard & Poor’s 500 Index will rally 18 percent to 1,500 by the end of December and Treasurys will have a “decent” year.

“We have a very out-of-consensus view for how much the economy can grow before this growth generates higher inflation and interest rates,” Jan Hatzius, the company’s New York-based chief U.S. economist, wrote in a report he distributed by e-mail today. “If we’re right, the likely implication is a decent environment for the Treasury bond market and a very good environment for the equity market.”

The S&P 500 has climbed 12 percent over the past year, rising to the highest level since Lehman Brothers Holdings Inc.’s bankruptcy in September 2008 as Fed Chairman Ben S. Bernanke pumps $600 billion into the economy and President Barack Obama extends tax cuts. An advance to 1,500 would result in a 19 percent gain for the year. The index has only risen that much twice in the past decade, gaining 23 percent in 2009 and 26 percent in 2003.

U.S. three-month bill rates will average 0.2 percent in 2011 and 0.3 percent in 2012, the report said, compared with 0.14 percent today. Ten-year Treasury yields will rise to 3.75 percent by Dec. 31 from 3.35 percent now, according to Goldman, which is one of the 18 primary dealers that are authorized to trade directly with the Federal Reserve. (more)

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