Topline
Goldman Sachs strategists upped their year-end forecast for the S&P 500 benchmark stock index to a Wall Street-leading level, the latest sign of the market’s exuberance as stocks rally to record highs.
More gains are ahead for the red-hot S&P 500, according to Goldman Sachs.
Key Facts
The David Kostin-led Goldman group upped their S&P target from 5,200 to 5,600 in a weekend note, indicating more than 3% from the leading stock indicator’s 5,430 price Monday.
The forecast makes Goldman the most bullish sell-side strategists on Wall Street, with the 5,600 target matching UBS and BMO Capital Markets, according to Bloomberg.
Though Goldman only anticipates a modest rally over the second half of 2024, its new target is almost 20% higher than its 4,700 target for the end of 2024 set in November, with the S&P up about 930 points in the interim, exactly offsetting the bullish tilt.
It may not appear groundbreaking to just up expectations by the same magnitude as the recent gains, but it indicates a growing Wall Street belief that this bull market has real staying power, and that the red flashes exhibited by the top-heavy rally driving much of the existing gains can be quieted as gains extend beyond the likes of artificial intelligence powerhouses like Nvidia.
Kostin explained that as earnings growth of the 495 S&P constituents not named Alphabet, Amazon, Microsoft, Meta and Nvidia begins to more closely resemble that of the technology mammoths, the S&P’s fair valuation will become more enticing, supporting further gains.
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Big Number
4,700. That’s where Goldman expects the S&P to end the year if expectations for the big tech market dominators “prove too optimistic” and AI-inspired growth stalls. Alternatively, the bank sees the index ending 2024 at 6,300 if the Nvidia-led group continues to reward investors with exceptional profit expansion.
Key Background
Consensus analyst forecasts call for 9% aggregate S&P earnings growth in 2024’s second quarter to $513.6 billion worth of profits, which would be the strongest annual profit expansion in two years, according to FactSet. High single-digit bottom line growth isn’t exactly earth shattering—the S&P’s year-end earnings per share has risen by 10% or more 10 times annually this millennium—but it’s fairly remarkable considering the macroeconomic setup facing companies. Interest rates are at their highest levels since 2001, weighing down corporate earnings as profit margins grow slimmer due to the higher interest payments associated with debt financing, which most companies undertake to fund operations. The rate-setting Federal Reserve expects to lower interest rates by about 25% by the end of next year, which should further support stock valuations. Still the S&P has returned 45% since the Fed began to hike rates two years ago, defying the typically poor stock performance accompanying high-rate environments.
What To Watch For
If the rosy-looking market begins to show any cracks. The run-up to all-time highs as earnings stagnated and rates did not come down to friendlier levels as expected likely gives the typical fundamentals-focused investor pause, but just four of the 10 signals of the end of a bull market identified by Bank of America are triggered today versus an average of seven typically preceding such events. Perhaps most notably for current conditions, the Bank of America strategists led by Savita Subramanian noted that “mega-cap leadership alone is not cause for alarm” as the S&P does not typically enter into a decline when the largest stocks outperform the broader index.
