‘No return’ left for U.S. stock market in 2024, says Goldman’s David Kostin

‘No return’ left for U.S. stock market in 2024, says Goldman’s David Kostin

The U.S. stock market’s climb this year probably has stalled for the rest of 2024, even as investors remain optimistic that companies stand to benefit from the adoption of artificial intelligence, according to Goldman Sachs Group’s David Kostin.

There’s basically “no return” left for the S&P 500 index from now on this year, Kostin, Goldman’s chief U.S. equity strategist, said Thursday on stage at the bank’s RIA Professional Investor Forum in New York. Kostin has forecast the S&P 500 will finish 2024 at 5,200.

The S&P 500 has climbed 9.3% this year after finishing Thursday at  5,214.08 — the highest closing value since the start of April, according to Dow Jones Market Data. The U.S. stock-market gauge has jumped 3.5% so far in May, rebounding from last month’s slide to end Thursday just 0.8% below its record closing peak on March 28.

The stock market, which is “expensive” relative to history, is pricing in a faster annual pace of growth for the U.S. economy than its current rate of around 3%, according to Kostin. Growth stocks, in particular, are trading at a “huge premium,” he said.

Growth stocks are trouncing value equities this year, extending their 2023 surge.

The Russell 1000 Growth index has climbed almost 11% in 2024 to surpass the 6.6% rise for the Russell 1000 Value index year to date, FactSet data show through Thursday. Growth stocks are building on their more than 41% jump in 2023, when value equites lagged far behind with a 8.8% gain.

Investor enthusiasm for growth stock Nvidia Corp. which makes AI chips, has propelled the company to a $2.2 trillion market value as its shares have soared 79% in 2024 through Thursday. Nvidia will report its latest quarterly earnings results on May 22 after the closing bell.

“We have spent a lot of time” talking with clients about AI, said Kostin.

In some cases, revenue growth will probably be slower than now expected for some of the perceived winners in artificial intelligence, posing a risk to the market, he cautioned.

Beyond the infrastructure around AI, including cloud companies, investors are watching for artificial intelligence to potentially increase companies’ revenue and increase productivity, according to Kostin. The process of adopting AI is still early, but may be more widespread in five years, he said.

The typical stock in the market is less expensive than the S&P 500, an index with outsized exposure to megacap companies, according to Kostin.

Nvidia is among the top companies in the index based on market value, after Microsoft Corp. which has a market capitalization of more than $3 trillion, and Apple Inc. valued at $2.8 trillion.

Shares of the Invesco S&P 500 Equal Weight ETF which weights all the stocks in the index equally, were up 5.1% this year through Thursday, FactSet data show. The ETF also trailed the S&P 500, which is capitalization weighted, in 2023.

Meanwhile, the U.S. economy is “doing great,” with a historically low unemployment rate, said Kostin, while “inflation is moving in the right direction,” although not quickly enough yet for the Federal Reserve to cut interest rates at this point.

Goldman Sachs economist David Mericle expects the Fed may start lowering rates as soon as July, according to his research note dated May 1. His forecast calls for two rate cuts this year, including a second in November.

Next week investors will get a reading on U.S. inflation in April, as measured by the consumer-price index. Hotter-than-expected inflation earlier this year had sparked a rise in bond yields and spurred investors to push out expectations for rate cuts by the Fed.

The yield on the 10-year Treasury note declined Thursday to 4.448%, the lowest level since April 9, according to Dow Jones Market Data.

Within equities, the S&P 500 is attempting to rise for a third straight week amid a recent easing of market volatility. Wall Street’s so-called fear gauge, the Cboe Volatility Index fell Thursday to 12.69, its lowest level since January, FactSet data show.