Goldman: Trump rally has another 5% to go before political uncertainty sinks it later this year

Published Mon, Jan 30 201712:53 PM EST

Stock market gains may continue through the end of March, but could vanish later in 2017 as political tension under President Donald Trump intensifies, according to Goldman Sachs. "We expect hope will continue to lift S & P 500 to 2,400 in Q1 [first quarter] before the reality of politics brings stocks lower later in the year," Goldman's chief U.S. equity strategist, David Kostin, wrote in a note to clients distributed Monday. The 2,400 level presented by Goldman implies a gain of nearly 5 percent from Friday's close. "Record-high equity prices and low volatility suggest investors are focused on the potential for better economic growth instead of the risks implied by elevated policy uncertainty," Kostin wrote. Kostin thinks companies that rely on free global trade may come under pressure, so investors should seek refuge in names that do the majority of their business domestically. A recent survey by Goldman among 2,000 global fund managers echoed this sentiment, with 61 percent of the respondents pointing to geopolitics and elections as "the biggest risks" for stocks. "Domestic-facing U.S. firms in particular should benefit from a stronger USD and insulation from underpriced risks to trade," Kostin said. Some of the companies in Goldman's "High Domestic Sales basket" include AmerisourceBergen , Charles Schwab , Norfolk Southern and Wells Fargo . Each of these names derive 100 percent of their sales from the U.S. and have seen their stocks rise at least 20 percent in the past three months. Even at a global level, Goldman advises clients to focus on the foreign multinationals that might be insulated from trade wars, given their large exposure and existing business operations in the United States. "The European stocks with the largest U.S. sales exposure typically own U.S.-based businesses, rather than selling into the U.S. from abroad, and thus remain relatively insulated from trade or border-tax risks," Kostin wrote as an example of this trend. "Our Japan strategists similarly recommend a basket of U.S.-exposed Japanese stocks," he said. Since the U.S. presidential election in November, analysis by Goldman shows the most U.S.-exposed foreign stocks have outperformed local equities. So as things develop, the investment bank says the U.S. is probably the safest place for investors. Disclaimer

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Stock market gains may continue through the end of March, but could vanish later in 2017 as political tension under President Donald Trump intensifies, according to Goldman Sachs.

"We expect hope will continue to lift S&P 500 to 2,400 in Q1 [first quarter] before the reality of politics brings stocks lower later in the year," Goldman's chief U.S. equity strategist, David Kostin, wrote in a note to clients distributed Monday.

The 2,400 level presented by Goldman implies a gain of nearly 5 percent from Friday's close.

"Record-high equity prices and low volatility suggest investors are focused on the potential for better economic growth instead of the risks implied by elevated policy uncertainty," Kostin wrote.