Goldman Sachs Raises S&P 500 Forecast Again on Optimistic Earnings Outlook
Goldman Sachs Group Inc. has once again revised its forecast for the S&P 500 Index, reflecting Wall Street’s positive outlook for earnings. The investment bank’s strategists, led by David Kostin, attribute the revision to increased profit estimates. The 12-month forward earnings expectations for the US stock index are currently at a record high, signaling a significant improvement from a year ago.
Kostin now predicts that the S&P 500 will reach 5,200 by the end of this year, representing a 3.9% increase from Friday’s close. This is an upgrade from his previous forecast of 5,100 in mid-December. Initially, Kostin projected that the index would hit 4,700 by the end of this year, but it has already surpassed the significant milestone of 5,000 earlier this month.
Goldman Sachs’ price target of 5,200 for the S&P 500 in 2024 is now one of the highest on Wall Street, aligning with other bullish predictions from experts such as Tom Lee of Fundstrat Global Advisors and John Stoltzfus, chief strategist at Oppenheimer Asset Management.
The firm’s strategists have also raised their earnings-per-share forecast for the year. They now expect earnings per share to reach $241 and $256 in 2025, up from their previous estimates of $237 and $250. This reflects their anticipation of stronger economic growth and higher profits in the information technology and communication-services sectors. These sectors include tech giants like Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc., and Meta Platforms Inc.
The ongoing earnings season has largely confirmed what bullish investors were expecting – profits are holding up well. Out of the companies that have reported so far, 79% have beaten expectations. Investors have rewarded these stocks, with a median outperformance of 0.7% on the day of results.
The reporting period has been mixed for the so-called Magnificent Seven stocks. While Meta, Amazon, and Microsoft exceeded expectations, Tesla disappointed, and Apple highlighted weakness in China. Investors are now eagerly awaiting Nvidia’s earnings report later this week to see if the stock can meet the high expectations set by the artificial intelligence boom.
Goldman Sachs’ strategists believe that valuation multiples for both the S&P 500 and its equal-weighted counterparts will remain close to current levels. This means that earnings growth will be the primary driver of further upside this year. The S&P 500 Index has already climbed 4.9% this year, following a strong performance in 2023. Profits in the index are expected to grow by 8.8% in 2024 compared to the previous year.
The S&P 500 reached its all-time peak for the first time in two years in January, while the Nasdaq 100 hit a record high in December. These milestones were fueled by expectations of a dovish policy shift by the Federal Reserve and optimism surrounding artificial intelligence, which boosted technology stocks.
Other Wall Street peers, including Bank of America Corp., are also considering raising their year-end targets, suggesting that investors may not be optimistic enough. The median S&P 500 target among equity strategists tracked by Bloomberg currently stands at 4,950 through mid-January.
Even prominent bearish voices like Morgan Stanley’s Michael Wilson are expecting gains in the US equity market to broaden beyond the big tech companies that have dominated the rally thus far. Wilson maintains a target of 4,500 for 2024, implying a roughly 10% drop from Friday’s close.
Overall, Goldman Sachs’ revised forecast for the S&P 500 reflects the positive sentiment on Wall Street regarding earnings. With increased profit estimates and expectations of stronger economic growth, investors are optimistic about the future performance of the US stock index.