Goldman lifts S&P 500 target to 5,200 on profit expansion

“Increased profit estimates are the driver of the revision,” a team led by David Kostin wrote in a note to clients dated Friday.

Kostin now sees the S&P 500 rising to 5,200 by the end of this year, raising his forecast by about 2% from the 5,100 level he predicted in mid-December. The new target implies a 3.9% jump from Friday’s close. 

In November, he initially projected the S&P 500 would hit 4,700 by the end of this year.

Goldman’s 5,200 price target for the S&P 500 in 2024 is now among the highest on Wall Street, joining the ranks of Wall Street bulls including Tom Lee of Fundstrat Global Advisors and Oppenheimer Asset Management chief strategist John Stoltzfus, who both hold a similar year-end outlook.

The firm’s strategists upgraded their earnings-per-share forecast for the year to $241 and $256 in 2025, from $237 and $250 previously. That reflects their expectation for “stronger economic growth and higher profits” for the information technology and communication-services sectors, which contain five of the so-called Magnificent Seven stocks including Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet Inc. and Meta Platforms Inc. The new estimate sits above the median top-down strategist forecast of $235. 

The firm’s strategists expect valuation multiples for both the S&P 500 and its equal-weight brethren to remain close to current levels — at 20 and 16 times earnings, respectively, “making earnings growth the primary driver of remaining upside this year.”

The S&P 500 Index has climbed 4.9% this year, fueled by expectations of a dovish policy shift by the Federal Reserve and as artificial intelligence optimism lifted technology stocks. Profits in the 500-member gauge are expected to grow 8.8% in 2024 from a year ago, data compiled by Bloomberg Intelligence show. 

The S&P 500 topped its all-time peak for the first time in two years in January, while the Nasdaq 100 hit its first record in a similar span back in December after the Fed signaled that its aggressive rate hikes to contain inflation are likely over and cuts are on the table for 2024.

Wall Street peers like those at Bank of America Corp. have signaled their willingness to potentially raise their year-end targets as well on the idea that investors aren’t optimistic enough. The median S&P 500 target by nearly a dozen equity strategists tracked by Bloomberg currently sits at 4,950 through mid January. 

“The biggest risk to the S&P 500 in the near term is upside,” Savita Subramanian of Bank of America said on Bloomberg TV earlier this month. “Our target of 5,000 is probably too low in the near term.”

Even Morgan Stanley’s Michael Wilson — among the most prominent bearish voices on Wall Street — is now expecting gains in the US equity market to broaden into less loved corners than the big tech companies that have dominated the rally so far. His 2024 target remains 4,500, implying a roughly 10% drop from Friday’s close.

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Published: 19 Feb 2024, 06:12 AM IST