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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. I'm standing by with

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Speaker 1: David Costin, chief US Equity Strategists over e Goldman Sachs,

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Speaker 1: and it's an interesting day because we do see the

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Speaker 1: SMP just over fifty two one hundred. Of course, we

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Speaker 1: know that is also your target for the s and

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Speaker 1: P five hundred for the end of the year. David,

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Speaker 1: what would cause you at this point to boost that target?

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Speaker 2: Well, the target is based on fundamental analysis and the

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Speaker 2: way we think about it has the economy, earnings, valuation,

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Speaker 2: and money flow and so on that basis, our fifty

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Speaker 2: two hunderd target is what we're looking for. So in

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Speaker 2: order for us to raise or lower the target, one

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Speaker 2: of those variables would have to have to change. So

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Speaker 2: the economic data in our assumptions are going to be

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Speaker 2: reflecting growth of roughly three percent a little bit less

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Speaker 2: than three percent, earnings are growing around eight percent, and

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Speaker 2: valuations currently are high there at an index level basis

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Speaker 2: almost twenty one times earnings, and so the probability of

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Speaker 2: a multiple expansion, while possible, is less probable. The idea

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Speaker 2: of earnings being much greater than we're assuming we think

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Speaker 2: is pretty low. And then the question would then be

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Speaker 2: money flow. So in that framework, economy, earnings, valuation, and

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Speaker 2: money flow is suggestive and supports our analysis around five

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Speaker 2: thy two hundred, which is a target for the end

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Speaker 2: of the year, which is, as you indicated, roughly a

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Speaker 2: flat return from now to the end of the year.

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Speaker 1: Is there more upside or downside risk to your view

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Speaker 1: at this point, I.

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Speaker 2: Would say there's probably more upside. The upside would be,

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Speaker 2: for example, if the Federal Reserve was to cut more rapidly,

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Speaker 2: more dramatically than we are, assuming the market is assuming

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Speaker 2: somewhere maybe one to two cuts the golden sas economics

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Speaker 2: is looking for two cuts this year. So the extent

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Speaker 2: that that was to be front loaded and you saw

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Speaker 2: a cut in July, that would be supportive of potentially

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Speaker 2: a higher equity market. That's not our base case. So

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Speaker 2: base case is in fact that the market will trade

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Speaker 2: at around this level of multiple, or in fact even

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Speaker 2: lower multiple as we come towards the end of the year.

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Speaker 1: When you think about the end of the year, there

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Speaker 1: are some risks ahead, particularly as you've talked about before

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Speaker 1: election risk. What are the things that investors are not

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Speaker 1: thinking about heading into that season At this point in time,

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Speaker 1: how much volatility could there be?

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Speaker 2: Well, one interesting aspect of the election is that the

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Speaker 2: volatility for the October futures contract is actually trades at

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Speaker 2: a premium, but the volatility contract for November, which covers

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Speaker 2: a little bit later than the actual election, trades a discount.

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Speaker 2: And so one question that is often asked is when

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Speaker 2: will we actually know the outcome of the election, not

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Speaker 2: so much whether it's President Biden or President Trump, but

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Speaker 2: rather will this be known in a final decision on

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Speaker 2: the fifth of November or is there recounts that take

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Speaker 2: place in sort of uncertainty. That's a question we get

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Speaker 2: from a lot of portfolio managers.

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Speaker 1: What happens after that point? You think about where volatility

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Speaker 1: sits today on a spot basis, it's almost alarmingly low.

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Speaker 1: Is that deceptive?

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Speaker 2: Well, there's questions that clients asked about what are the

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Speaker 2: policies that may change. Will there be more tariffs, Will

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Speaker 2: there be a change in the regulatory environment in terms

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Speaker 2: of anti trust, what kind of environment will there be,

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Speaker 2: Will Congress be the Democrat or republic in the House,

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Speaker 2: in the Senate, and how will that you know?

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Speaker 1: What will the.

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Speaker 2: Result be from the election. So those are some questions

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Speaker 2: we get and then ultimately as a portfolio manager, what

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Speaker 2: does one do as a as an investor? So we

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Speaker 2: think about US companies that are exposed domestically from a

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Speaker 2: revenue point of view as compared with companies that are

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Speaker 2: exporting generate most of the revenues overseas, So that is

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Speaker 2: an area that people as fund managers are more focused

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Speaker 2: and we get more questions about a domestic oriented We

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Speaker 2: look at companies with the exposure to anti trust and

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Speaker 2: what is going to be the result both of the

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Speaker 2: existing number of major suit lawsuits that are going on

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Speaker 2: now in the world of technology, and does this dissuade

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Speaker 2: a lot of executives from pursuing potential acquisitions as a

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Speaker 2: result of the current environment, And if that was to change,

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Speaker 2: might you find greater proclivity on the part of CEOs

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Speaker 2: to acquire companies? Right now, you have CEO confidence that

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Speaker 2: has actually increased pretty substantially, And so that's some of

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Speaker 2: the discussion points with clients.

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Speaker 1: It would be silly for me not to ask you

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Speaker 1: about another thing that is starting to impact markets, and

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Speaker 1: that is the return or lack there of the retail

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Speaker 1: investor is mean stock mania two point zero back.

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Speaker 2: Well, we have to think of the number of stocks

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Speaker 2: that we're really looking at. There are a group of

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Speaker 2: stocks relatively small in number that have a lot of

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Speaker 2: excitement about those but from a fundamental point of view,

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Speaker 2: they tend to be relatively smaller in market capitalization and

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Speaker 2: they don't affect the index as dramatically as some of

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Speaker 2: the companies in the market. We think about the big

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Speaker 2: flows that take place in the market, the real drivers.

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Speaker 2: There is household demand, there's mutual funds, foreign investors, pension funds,

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Speaker 2: mutual funds. These are the big ownership categories. But the

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Speaker 2: real net demand is coming from share repurchases on the

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Speaker 2: part of companies. Companies will buy back in our estimate

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Speaker 2: in the S and P five hundred close to a

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Speaker 2: little more than nine hundred billion dollars of earnings, and

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Speaker 2: that would be money repurchasing stock that's going to be

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Speaker 2: up around thirteen percent year today.

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Speaker 1: David, we have to leave it there, hitting up a

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Speaker 1: heartbreak shortly. Thank you. That is David Costin, chief US

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Speaker 1: equity strategist over at Goldman Sachs