The rally in the S&P 500 so far this year has been very impressive. It’s up almost 14%, with fresh all-time highs happening on an almost weekly basis. Some investors might have reservations about the potential for it to continue. However, based on an updated forecast from a leading investment bank, S&P 500 stocks could have further to run.
Goldman Sachs strikes a positive note
I’m talking about the note issued last Friday (19 September) from Goldman Sachs. The research team upgraded its year-end view for the index and US stocks, from 6,600 points to 6,800 points. For reference, it’s currently at 6,645 points.
The note came with some reasoning behind the update, focusing on two main benefits for the index in the coming months. One is resilient corporate earnings. Although we’re coming to the close of the earnings season, it’s been a very positive one. The tariff impact that worried investors during Q2 earnings has mostly evaporated. With artificial intelligence (AI) innovation and adoption starting to be monetised by leading firms, this also bodes well.
The second main factor from the bank relates to the Federal Reserve cutting interest rates. It resumed the easing cycle at the meeting last week, with the market now expecting two further cuts before the end of the year. Historically, the stock market does well when interest rates fall, hence the reasoning here.
As a caveat, bank forecasts aren’t guaranteed to be accurate. They are ultimately the opinion of the research team, so they can be wrong.
Companies that could benefit
An investor could buy an S&P 500 tracker. However, more active stock picking could result in a higher return. For example, someone could think about stocks that could benefit from lower interest rates, along with companies that recently reported decent results.
To this end, they could consider IQVIA (NYSE:IQV). The global leader of analytics and clinical research services saw the stock jump 18% when it released results in late July, with revenue and earnings beating expectations.
Further, as interest rates fall, borrowing costs ease, and investment in healthcare and clinical research tends to increase. IQVIA’s business is tied to global healthcare demand and long-term contracts, so a lower-rate environment helps reduce financing costs and supports expansion.
Over the past year, the stock’s down 4%. Part of the drag, I believe, has come from the significant net debt of $13.45bn it currently holds. Even though lower interest rates will help ease the financing pressure, it’s still a large amount of debt which will worry some investors.
On balance, the global scale of IQVIA (operating in over a hundred countries) and the recurring revenue from contracts could make it an appealing option for investors to consider, as part of the broader positive sentiment around the S&P 500.
