Recommends focusing on ‘high-quality’ stocks Getty ImagesA trio of worries are likely to stop U.S. stocks from rallying, says Goldman Sachs.Underwhelming earnings, the federal debt limit deadline and a looming Federal Reserve rate increase will keep a lid on U.S. stocks, leaving the S&P 500 to stagnate around its current level, according to analysts at Goldman Sachs. “October will be dominated by the third-quarter earnings season. We expect a combination of disappointing sales growth and weak margins coupled with negative fourth-quarter guidance and reduced prospects for 2016,” said David Kostin, chief U.S. equity strategist at Goldman Sachs, in a Monday note. Kostin, who reiterated his forecast for the S&P 500 SPX, -0.68% to close out 2015 at 2,000, pointed to results from Monsanto Co. MON, -0.40% Yum Brands Inc.YUM, -1.21% and FedEx Corp. FDX, -1.90% for his pessimistic view. Monsanto, Yum and FedEx all reported quarterly earnings below Wall Street’s projections. The S&P 500 was little changed in recent trade, changing hands at 2015.59. November, meanwhile, will be clouded by uncertainties over the federal debt ceiling—a situation further clouded by the turmoil surrounding the resignation of House Speaker John Boehner and the surprise decision by Rep. Kevin McCarthy last week to withdraw from the race to succeed Boehner, leaving House Republicans in chaos. The government expected to reach its borrowing limit around the third week of November. “Politics suggests the new speaker will need to demonstrate his or her conservative bona fides to establish credibility. Negotiations to lift the debt ceiling may be contentious and may not be resolved until the last moment,” Kostin said. In December, the market’s focus will shift to the Federal Reserve which is expected by Goldman to announce its first interest-rate hike in nine years on Dec. 16. However, given the dovish tone of last month’s policy meeting, the probability of the Fed tightening its policy by the end of the year is only 39%. Once the Fed begins liftoff, the price-to-earnings multiple for stocks is likely to deteriorate. Still, if the Fed decides to hold off on raising interest rates until 2016, that could trigger wider worries about economic growth. Against such an uncertain backdrop, Kostin said the best approach to the market is to focus on “high-quality” stocks with stable sales growth and strong balance sheets such as Apple Inc. AAPL, +0.17% Gilead Sciences Inc. GILD, -1.33% Wells Fargo & Co. WFC, -0.61% Coca-Cola Co. KO, -0.83% and Priceline Group Inc.PCLN, -0.16% See Goldman Sachs’ full list of “high quality” stocks. “Given that our year-end index target is slightly below the current level, we would sell upside calls on the index and buy investment-grade or high-yield credit which currently trade at the 77th percentile and 72nd percentile of historical spread, respectively,” said Kostin, adding that these spreads imply “an unrealistically high risk of recession.” More from MarketWatch