August's weak reading for the U.S. Institute for Supply Management manufacturing index has analysts at Goldman Sachs bullish on "an opportunity for equity investors."
What it means: Goldman Sachs is expecting the S&P to end the year at 3100, up a little more than 4% from its current level, and to finish 2020 at 3400, meaning another year of meaningful gains.
- "Our economists expect that a US recession is unlikely during the next 2 years," analysts from Goldman's portfolio strategy research team said in a weekend note to clients.
- "They highlight the lack of economic imbalances and believe that elevated consumer spending and a smaller drag from inventory accumulation should boost economic growth through the end of 2019 and 2020," the team said.
Details: The ISM manufacturing index fell to 49.1 in August, its lowest reading since January 2016, helping send markets significantly lower on the day.
- But Goldman argues the index has been "an inconsistent predictor of US recessions during the past 40 years."
- "In 6 of 11 instances since 1975 a recession did not occur despite the fact that the ISM fell below 50. ... During previous episodes when the US economy did not enter a recession despite ISM readings below 50, the S&P 500 typically rose in the subsequent six months (+6%) and 12 months (+22%)," per Goldman.
