Analysts at Goldman envision earnings fueling the US stock boom

In a research note released on Wednesday, Goldman Sachs analysts stated that they anticipate strong economic growth and corporate profitability to be the main drivers of forward market returns.

The investment bank feels that equities with significant operating leverage are going to do well. However, at the index level, high interest rates and already high multiples will restrict the opportunity for additional value expansion.

"High operating leverage businesses are able to increase revenues without raising expenses. Because of this, high operational leverage equities might see higher margins and quicker profit growth than low operating leverage companies, according to Goldman Sachs.

Furthermore, the bank thinks that high operational leverage equities will perform better than low operating leverage stocks based on the projection for S&P 500 sales growth.

Additionally, the bank asserts that a shift in consensus makes the trade favourable today, citing the near-record valuation discount to low operational leverage equities as support for the case for high operating leverage stocks.

The US economy is growing stronger, and this has led to improved year-over-year adjustments for 2024 sales. The bank also noted that typically, high operational leverage equities have done well when the ISM Manufacturing Index is expanding.

(Sources: investing.com, reuters.com)