Strategists at Goldman Sachs Group Inc. raised its year-end target for the S&P 500 for the third time, reflecting Wall Street’s bullish outlook for earnings growth and the U.S. economy.
The bank’s equity strategists, led by David Kostin, now forecast the US stock index will end the year at 5,600, up from the 5,200 level they forecast in February. The new target implies an increase of the indicator by about 3% compared to Friday’s close.
Goldman’s target hike matches that of UBS Group AG’s Jonathan Golub and BMO Capital Markets’ Brian Belsky, the highest on Wall Street.
The higher target “is driven by a more moderate-than-average negative earnings revision and a higher fair value P/E ratio,” Kostin, the firm’s chief U.S. equity strategist, wrote in a note to clients on Friday.
The promotion comes a month after Kostin reaffirmed the company’s target of 5,200, saying there was no further growth potential in the 500-member ranking before December. The firm’s strategists first unveiled their 2024 target in novemberbefore promotion this is in December and again in February. The S&P 500 closed at 5,431.60 on Friday.
While the firm’s strategists maintained their earnings per share forecast for 2024 and 2025, they noted that strong earnings growth from the five largest mega-cap tech companies offset “the typical pattern of negative revisions to consensus earnings per share estimates.” Kostin also raised the S&P 500’s price-earnings ratio, which he considers fair, to 20.4 from 19.5.
Kostin has developed several other scenarios in which the stock could rise even above his new baseline forecast. If growth picks up and lifts the S&P 500 equal-weight index, the main cap-weighted benchmark could rise another 9% to 5,900 before the 2024 close. In his most optimistic scenario, if mega-cap exceptionalism continues, the ratio could soar to 6,300 by year-end.
Conversely, if earnings estimates prove too optimistic or recession fears reignite among investors, the S&P 500 could see a correction of about 13% and fall to 4,700.