Goldman Sachs equity strategists have adjusted their year-end S&P 500 index target, increasing it to 5200 from 5100, indicating a potential 4% upside from current levels. This move follows heightened profit estimates, with the new 2024 earnings per share (EPS) forecast at $241, reflecting an 8% upward revision and surpassing the median top-down strategist forecast of $235.
The S&P 500 index closed at 5005.56, down 0.4% for the week, reflecting the ongoing adjustments in market dynamics.
The strategists’ optimism is grounded in expectations of robust economic growth and increased profits in the Information Technology and Communication Services sectors, home to five of the “Magnificent 7” stocks. The recently concluded fourth-quarter earnings season showcased corporations’ ability to sustain profit margins despite a slowdown in inflation, according to analysts.
Goldman Sachs emphasizes the fundamental strength of mega-cap stocks and anticipates that these stocks will contribute to boosting aggregate S&P 500 profits in 2024. The strategists identify stronger-than-expected GDP growth or continued upside earnings surprises from mega-cap stocks as potential upside risks to their EPS forecasts.
The banking giant predicts that price-to-earnings (P/E) valuation multiples for the equal-weight S&P 500 (16x) and the aggregate cap-weight index (20x) will remain stable. This underscores the belief that earnings growth will be the primary driver of further upside in the market throughout the year.
However, Goldman Sachs also highlights key risks that could lead to a pullback in the S&P 500, including disappointing macroeconomic growth or underperformance from the largest stocks, resulting in falling earnings forecasts. The dynamic interplay of these factors will likely influence the trajectory of the S&P 500 in the coming months.