PUBLISHED THU, JAN 13 202212:10 PM ESTUPDATED 2 HOURS AGO
David Kostin, Goldman Sachs chief U.S. equity strategist, speaks during an interview with CNBC on the floor of the New York Stock Exchange, July 11, 2018.
Brendan McDermid | Reuters
Goldman Sachs’ David Kostin sees corporate earnings driving market action this year and shared how he would position portfolios.
“It’s really earnings that are likely to drive and lift the market higher,” Kostin told CNBC’s “Squawk on the Street” Thursday.
The chief U.S. equity strategist has a 5,100 year-end target on the S&P 500. He predicts earnings growth of 8% and that the benchmark 10-year Treasury yields will reach around 2%.
Kostin’s comments come ahead of a slew of quarterly results from banks like JPMorgan Chase and Wells Fargo to kick off the fourth-quarter earnings reporting season.
They also come as the Federal Reserve is tapering off its pandemic-era policy, preparing to hike interest rates and trim its balance sheet to address inflation.
“In the next several weeks, it will be less of focus for investors, in my opinion, on the idea of rates and the Fed policy and some of those changes, but much more micro, much more idiosyncratic, focused on individual stock stories,” Kostin said.
“It’s not so much a topline story, but rather, can companies maintain their margins?” he added.
Kostin outlined what he called his “barbell strategy” to capture both corporate earnings and rising rates.
Technology is a sector that benefits from the focus on profit margins, he said.
“We’re focusing on where companies are able to kind of improve margins. That’s likely to be more in technology, but I would emphasize the more profitable end of the spectrum,” Kostin said.
To capitalize on rising rates, Kostin likes financial stocks. Rising interest rates benefit banks in several ways. For instance, the cost of borrowing will go up for consumers in the form of higher rates on credit cards and certain mortgages. In turn, this boosts banks’ profitability.
“The idea of financials tends to do particularly well, broadly speaking the banks and the other financial intermediaries … when rates are rising, that is also part of our playbook,” Kostin said.
Kostin also likes health-care stocks as a value play. The strategist said health care “remains today chiefly undervalued relative to the market going back decades.”