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Better-Than-Expected Earnings Should Help Stocks: Cohen

Monday, 2 Aug 2010 | 1:06 PM ET

Corporate earnings in the US and Europe have been "dramatically better than expected" and may give average investors more confidence in stocks, Abby Joseph Cohen, chief market strategist at Goldman Sachs, told CNBC Monday.

Abby Joseph Cohen
CNBC
Abby Joseph Cohen

Over the last several days "we have seen earnings in the United States have not only been good, but dramatically better than expected," Cohen said.

Also, with talk of Europe's economy gaining strength, the Goldman strategist said, the impact on the United States is "extremely favorable."

Aside from North America, "Europe is the most important export market for the United States," and exports have been the "shining lights in our own economic recovery."

Cohen's target price for the S&P 500 remains in the 1250 to 1300 range, which the chief strategist thinks is consistent in terms of "sustainable level of earnings growth."

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Many investors have "been sitting on the sidelines" waiting for direction, Cohen said, but positive signs are showing for the economy.

A "double-dip" recession is unlikely to happen, she said, but she is watching whether capital spending continues at a good pace and consumer spending stabilizes.

One of the things investors should look for is "yields in other places," Cohen said. "Clearly we know that yields, especially in government bonds, are significantly depressed"—though the situation is less so on the corporate side.

As the economic recovery gains traction and moves forward, Cohen believes, "interest rates will begin to rise as investors have greater confidence in economic activity continuing."

This seems in some ways "mathematically inappropriate for equities to do well when interest rates are rising, but in both cases it's a question of confidence in the sustainability of the economy and also the sustainability of earnings growth," she said.

"There's a lot of wiggle room for interest rates to rise and equities to still look attractively priced," Cohen concluded.

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Programming note: "The Strategy Session," hosted by David Faber and Gary Kaminsky, airs weekdays at Noon ET on CNBC.

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