Goldman Sachs: Go Long IT And Financials Heading Into Q3

Goldman Sachs analysts, led by David Kostin, said that the S&P 500 returned roughly 1 percent in H1 2015, with returns driven by dividends. Without dividends, the SPDR S&P 500 ETF Trust SPY returned just 0.2 percent through June 30. Goldman said this compares to 0.1 percent losses in 10-year Treasury bonds and 0.7 percent gains in mutual funds.

Over the next six months, Goldman forecasted that the S&P would return 6 percent. Broken down, that equates to a 4 percent gain in the price of the index and 2 percent returns in dividends.

To outperform the market, Goldman recommends the Information Technology and Financial sectors. IT trades at a 16x forward P/E ratio, while Financials trade at 13.7x forward P/E. On the high side, Energy trades at 24x forward P/E, and, on the low side, Telecommunication trades at 13.2x forward P/E.

Kostin argued that the financial sector "currently appears to be the most undervalued sector." Goldman pointed to the fact that implied EPS growth in the financial sector underperformed the index by 1.1 percent during the past 10 years. Now, however, that implied EPS growth is 5 percent below the S&P 500.

In addition to being Overweight Financials and Information Technology, Goldman recommended that investors Underweight Consumer Staples, Energy, Utilities and Materials. The firm is Neutral on Health Care, Consumer Discretionary, Industrials and Telecom Services.