Goldman Lifts S&P 500 Target With Profit Optimism to Drive Rally

Just months after setting a 2024 target for the S&P 500 Index, Goldman Sachs Group Inc. strategists have boosted their forecast for a second time, reflecting Wall Street's optimistic outlook for earnings.

"Increased profit estimates are the driver of the revision," a team led by David Kostin wrote in a note to clients dated Friday. The 12-month forward earnings expectations are at a record high for the U.S. stock index after forecasts bottomed out a year ago.

Kostin now sees the S&P 500 gaining to 5,200 by the end of this year, implying a 3.9% rise from Friday's close, raising his forecast from the 5,100 level he predicted in mid-December.

He initially projected in November that the S&P 500 would hit 4,700 by the end of this year, but the gauge has already eclipsed the significant 5,000 milestone this month.

Goldman's 5,200 price target for the S&P 500 in 2024 is now among the highest on Wall Street, joining the ranks of bulls including Tom Lee of Fundstrat Global Advisors and Oppenheimer Asset Management chief strategist John Stoltzfus, who both hold a similar year-end outlook.

Raising Estimate | Goldman strategists up their year-end target to 5,200 from 5,100

The firm's strategists upgraded their earnings-per-share forecast for the year to $241 and $256 in 2025, from $237 and $250 previously.

That reflects their expectation for "stronger economic growth and higher profits" for the information technology and communication-services sectors, which contain five of the so-called Magnificent Seven stocks including Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc. and Meta Platforms Inc.

The new estimate sits above the median top-down strategist forecast of $235.

The ongoing earnings season has so far reaffirmed what bulls were expecting all along: profits are holding up well.

Out of the near 84% of the S&P 500's market capitalization which have reported so far, 79% of firms beat expectations.

Investors have broadly rewarded these stocks, which outperformed the benchmark by a median of 0.7% on the day of results, according to data compiled by Bloomberg Intelligence.

The reporting period was mixed for the Magnificent Seven. While Meta, Amazon and Microsoft exceeded expectations, Tesla Inc. disappointed and Apple flagged weakness in China.

Investors are largely anticipating Nvidia's earnings due later this week for confirmation that the stock can meet sky-high expectations set by the boom in artificial intelligence.

Growth Forecasts, Optimism

The Goldman strategists expect valuation multiples for both the S&P 500 and its equal-weighted brethren to remain close to current levels — at 20 and 16 times earnings, respectively, "making earnings growth the primary driver of remaining upside this year."

The S&P 500 Index has climbed 4.9% this year after a strong 2023, fueled by expectations of a dovish policy shift by the Federal Reserve and as artificial intelligence optimism lifted technology stocks.

Profits in the 500-member gauge are expected to grow 8.8% in 2024 from a year ago, data compiled by Bloomberg Intelligence show.

The S&P 500 topped its all-time peak for the first time in two years in January, while the Nasdaq 100 hit its first record in a similar span back in December after the Fed signaled that its aggressive rate hikes to contain inflation are likely over and cuts are on the table for 2024.

Wall Street peers like those at Bank of America Corp. have signaled their willingness to potentially raise their year-end targets as well on the idea that investors aren't optimistic enough.

The median S&P 500 target by nearly a dozen equity strategists tracked by Bloomberg currently sits at 4,950 through mid-January.

"The biggest risk to the S&P 500 in the near term is upside," Savita Subramanian of Bank of America said on Bloomberg TV earlier this month. "Our target of 5,000 is probably too low in the near term."

Even Morgan Stanley's Michael Wilson — among the most prominent bearish voices on Wall Street — is now expecting gains in the U.S. equity market to broaden into less loved corners than the big tech companies that have dominated the rally so far.

His 2024 target remains 4,500, implying a roughly 10% drop from Friday's close.

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