Kostin acknowledged there are challenges.
Wages are increasing at a 3.3 percent rate, the highest since the recovery began in mid-2009, according to Goldman’s tracker. In addition, the firm thinks there’s a 60 percent chance that President Donald Trump levies tariffs on the remaining $267 billion worth of Chinese goods that haven’t already been targeted.
However, rising earnings, which are expected to increase 19.1 percent for the third quarter from the same period a year ago, should assuage some of those concerns. Also, return on equity continues to climb, pointing to margin expansion.
In the face of those headwinds, Goldman is advising clients to shift to growth stocks with an emphasis on strong balance sheets. Those with lower debt levels will have a better ability to withstand rising interest rates.
Goldman’s basket of growth stocks with the highest return on equity has modestly outperformed the S&P 500 this year, gaining 4.1 percent compared with the index’s 3.5 percent. Apple, Microsoft, Nike and Deere are among the stocks in this basket.
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