Goldman: Earnings growth will drive stocks

The bank's chief global strategist, Peter Oppenheimer, expects the US economy to be growing at an annualized rate of 3.8% by next July.

By MSN Money Partner Jul 22, 2013 5:07PM

The Goldman Sachs logo at the company's booth on the floor of the New York Stock Exchange, on July 19, 2013 (© Scott Eells/Bloomberg via Getty Images)CNBCBy Holly Ellyatt

 

Earnings growth will be the main driver for global equity markets over the next year as the world economy picks up, the chief global equity strategist at Goldman Sachs told CNBC.

 

Peter Oppenheimer told CNBC Europe's "Squawk Box" on Monday that a combination of an improving economy with low inflation and interest rates set the scene "for a pick-up in profitability and equity prices" over the next year and beyond.

 

He forecast the U.S. economy would grow 3.8% at an annualized rate by next July, but, because inflation was so low and the output gap still large, interest rates could stay low probably until early 2016.

 

"We're talking about the gradual normalization of global GDP growth here. By next year we're expecting global GDP to be growing at about 3.8%," Oppenheimer said.

 

His comments came after the S&P 500 ($SPX) and Dow Jones Industrial Average ($INDU) rose for the fourth consecutive week on the back of strong earnings.

 

So far, one-fifth of S&P 500 companies have reported quarterly results, with 65% of companies posting earnings above estimates, while 51% missed expectations, according to data from Reuters. If all remaining companies report earnings in line with forecasts, earnings will be up 2.9% from last year's second quarter.

 

"It's true that generally, the results have beaten expectations," Oppenheimer remarked. "But also the size of the beat is important and so far the size of the beat has been bigger than average. Partly because of financials but even if you exclude financials, in general the overall beat has been bigger than normal," he said.

 

"Markets have moved up strongly in the last year and a lot of that is on expectations of a recovery. We expect that recovery to come through. We think the next phase of the rise in equity prices is not going to be about multiple expansion but about earnings recovering as the global economy picks up and gradually gets back to a normalized trend."

 

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