For investors looking for a place to hide while inflation is rampant, Goldman Sachs’ top equity strategist said to look no further than stocks.
“If you’re looking for a good hedge on inflation, the equity market is certainly one area to focus on,” Goldman Sachs chief U.S. equity strategist David Kostin told CNBC’s “Squawk on the Street” on Thursday.
Kostin said companies were plagued with four major headwinds in 2021: supply chain disruption, rising commodity prices, a challenging labor market and Covid-19 variants. Nevertheless, profit margins rose in the first three quarters of this year due to companies’ strong pricing power.
The S&P 500 is up nearly 25% this year, sitting about 1% from its all-time level.
“It is all likely to come in the form of earnings growth,” said Kostin.
The Wall Street firm is estimating about 8% profit growth in 2022.
“One of the issues here is valuation is extremely high relative to history but the interest rate environment is quite low,” added Kostin.
The strategist also said he expects the first half of the year to be stronger than the second half.
Kostin added that tax increases have essentially been punted to 2023, removing the headwind from next year’s forecast.