Goldman ups S&P 500 target for a third time — and says 6,300 is possible
Goldman ups S&P 500 target for a third time — and says 6,300 is possible
Third time’s a charm? That could be true for Goldman Sachs, whose strategists have upped their S&P 500 target again, this time to match some of Wall Street’s most optimistic analysts.
The bank now sees the record-busting index ending 2024 at 5,600, from a prior 5,200 thanks to “milder-than-average negative earnings revisions and a higher fair value price/earnings multiple,” said a team of strategists led by David Kostin, in a note to clients late Friday.
Goldman previously lifted its S&P 500 target in February and December 2023, not long after announcing its outlook for this year.
Another bullish year for stocks has seen most strategists, who had been expecting below-average returns after a blistering 2023, bumping up forecasts throughout 2024. The S&P 500 logged its 29th record close last Thursday.
The bank now falls in line with BMO Capital Market’s Brian Belski, who boosted his target in May to 5,600, becoming Wall Street’s biggest bull, though he and Goldman were leapfrogged this weekend by Evercore strategists, who have a new target of 6,000.
Kostin and his team credit the S&P 500’s 13% plus gain this year to heavy lifting by five stocks — Microsoft Nvidia Alphabet Amazon and Meta — up a collective 45%, with 25% of the index’s market cap. Those five names have posted earnings per share growth of 84% versus 5% for the typical stock, as valuations have risen amid enthusiasm over artificial intelligence.
“We now expect the current bottom-up consensus 2025 [earnings per share] estimate of $279 will be lowered by just 2% through year-end, half the average historical revision,” they said. But the strategists are keeping their 2024 and 2025 forecasts of $241, a gain of 8%, and $256, a 6% bump, on the belief consensus margin estimates for next year are “too optimistic.”
Their valuation model indicates the S&P 500’s P/E will be 20.4 times by year end, 3% below the current 21.1 times multiple.
Goldman also laid out some alternative index paths, such as a “catch-up” scenario that would see a year-end finish of 5,900, as the S&P 500 equal-weight index expands to 18 times, matching a pre-pandemic high.
They flag a possible “catch-down” scenario, in which the index ends the year at 4,700. “The key risk to today’s market leaders is if current analyst estimates prove too optimistic,” with a higher bar created by AI optimism, said Kostin and the team.
A third scenario of “continued megacap exceptionalism” would see the index finish at 6,300. And fourth, a finish of 4,800 is possible if investors begin to grow wary over the economy and start to price in a higher risk of recession.
“Although our economists still forecast above consensus economic growth, further weak growth data could reignite anxiety over a slowdown and push the S&P 500 P/E multiple down to 18 times,” said Kostin. In that scenario, investors would likely “gravitate toward perceived safety of largest stocks, driving up the aggregate vs. equal-weight premium and limiting some downside.”
That downside would also be limited by the Fed, which would have more room to cut interest rates if economic data started to unravel, they said.
Kostin and his team added that the U.S. election remains a key risk for stocks, noting that historically during election years, the index has dropped 4% between late October and early November, though stocks tend to rebound even higher after that election.