GS: What if? S&P 500 outcomes if inflation, interest rates, and tax reform deviate from our base-case forecast

by David Kostin, and team, Goldman Sachs

Halfway through the year, the S&P 500 stands just 1% below our year-end 2021 price target of 4300. Our forecast is conditional on our macro assumptions: Inflation will diminish, interest rates will rise, and a portion of President Biden’s fiscal plan will pass into law.

But this future is not guaranteed. Recent client discussions have focused around the risks to our baseline macro forecast. We consider three “what if” scenarios that each focus on a key macro assumption and explore the implications of alternative outcomes for US equity returns, earnings, and valuations:

(1) “What if inflation is not transitory,”
(2) “What if interest rates fall or rise more than we expect,” and
(3) “What if tax reform does not materialize?”