Goldman Sachs Group Inc. strategists raised their year-end targets for the S&P 500 index for the third time, reflecting Wall Street’s optimistic outlook for profit growth and the U.S. economy.
The bank’s equity strategists, led by David Kostin, now expect the U.S. benchmark stock index to finish the year at 5,600, up from a February forecast of 5,200. The new target would imply an increase of about 3% from Friday’s closing price.
Goldman’s upgraded target tied those of UBS Group Inc.’s Jonathan Golub and BMO Capital Markets Inc.’s Brian Belski as the highest on Wall Street.
The increase in the target price is due to “more moderate than average earnings downward revisions and a higher fair value P/E multiple,” Kostin, the firm’s U.S. shareholder strategist, wrote in a client note on Friday.
The increase came a month after Kostin reiterated his firm’s price target of 5,200 and said the 500-stock index had no room for further upside through December. The firm’s strategists first issued their 2024 price targets in November and raised them in December and February. The S&P 500 closed at 5,431.60 on Friday.
The firm’s strategists maintained their earnings-per-share forecasts for 2024 and 2025, but noted that strong earnings growth among the top five mega-cap tech stocks offset “the typical pattern of downward revisions to consensus EPS estimates.” Kostin also raised his fair value price-to-earnings multiple for the S&P 500 to 20.4x from 19.5x.
Kostin envisioned several scenarios in which stocks could rise even higher than his new baseline forecast. If the rally extends and the S&P 500 equal-weight index rises, the main market-cap-weighted benchmark could rise another 9%, to 5,900 by the end of 2024. In his most optimistic scenario, continued mega-cap “exceptionalism” could send the index soaring to 6,300 by the end of the year.
Conversely, if earnings outlooks turn out to be overly optimistic or recession fears resurface among investors, the S&P 500 could see a correction of around 13%, dropping to 4,700.
