Goldman Sachs Group’s David Kostin says this year’s U.S. stock market rally will likely lag in 2024, despite investors’ optimism that companies will benefit from the adoption of artificial intelligence. It is said that there will be a lot of stagnation.
Kostin, Goldman’s chief U.S. equity strategist, said Thursday on stage at the bank’s RIA Professional Investor Forum in New York that there is essentially “no return” on the S&P 500 this year. Kostin expects the S&P 500 to end 2024 at 5,200.
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The S&P 500 SPX is up 9.3% year-to-date after closing at 5,214.08 on Thursday, its highest close since early April, according to Dow Jones Market Data. The U.S. stock market index has risen 3.5% so far in May, rebounding from last month’s decline and ended Thursday just 0.8% below its March 28 closing high.
Kostin said the stock market, which is “expensive” relative to history, is pricing in faster annual growth in the U.S. economy than the current rate of about 3%. Growth stocks in particular are trading at a “very high premium,” he said.
Growth stocks will outperform value stocks this year, and the gains in 2023 will be even wider.
The Russell 1000 Growth Index RLG has risen nearly 11% in 2024, outpacing the Russell 1000 Value Index RLV’s 6.6% rise since the beginning of the year, according to FactSet data. Growth stocks are rising on the back of a more than 41% rise in 2023, far behind value stocks’ 8.8% rise.
Investor enthusiasm for growth stocks Nvidia Inc., which makes AI chips, saw its stock soar 79% from 2024 through Thursday, pushing its market value to $2.2 trillion. Nvidia is scheduled to release its latest quarterly results after the closing bell on May 22nd.
Kostin said he has “spent a lot of time” talking to customers about AI.
In some cases, revenue growth for some of the perceived winners in the artificial intelligence space could be slower than currently expected, which could pose a risk to the market, he said. warned.
Beyond AI-related infrastructure, including cloud companies, investors are focused on the potential for artificial intelligence to increase revenue and improve productivity for companies, Kostin said. Although the process of AI adoption is still in its early stages, it could become more widespread within five years, he said.
Kostin said the market’s typical stocks are cheaper than the S&P 500, an index with heavy exposure to mega-cap companies.
Nvidia is one of the index’s top companies based on market capitalization, following Microsoft’s MSFT, which has a market capitalization of more than $3 trillion, and Apple’s AAPL, which has a market capitalization of $2.8 trillion.
Shares of the Invesco S&P 500 Equal Weight ETF FRSP, which equally weights all stocks in the index, have risen 5.1% since the beginning of the year through Thursday, according to FactSet data. The ETF lagged the market-cap weighted S&P 500 index in 2023 as well.
Meanwhile, Kostin said that while the U.S. economy is “in great shape” with historically low unemployment, “inflation is not moving in the right direction,” although it is not yet fast enough for the Federal Reserve to cut interest rates at this point. “I’m here,” he said.
Goldman Sachs economist David Mericle predicts the Fed could start cutting interest rates as early as July, according to a May 1 research note. He predicts there will be two rate cuts this year, including a second one in November.
Next week, investors will learn the U.S. inflation rate for April, as measured by the Consumer Price Index. Higher-than-expected inflation earlier this year caused bond yields to rise and prompted investors to boost expectations for Fed rate cuts.
The yield on the 10-year U.S. Treasury note BX:TMUBMUSD10Y fell to 4.448% on Thursday, the lowest level since April 9, according to Dow Jones Market Data.
In the stock market, the S&P 500 index is on track for its third straight week of gains after recent market volatility has eased. The CBOE Volatility Index VIX, Wall Street’s so-called fear gauge, fell to 12.69 on Thursday, its lowest level since January, according to FactSet data.
