Goldman Sachs now sees the S&P 500 climbing another 4% this year on mega-cap earnings strength

• Goldman Sachs increased its 2024 year-end S&P 500 price target to 5,200 on Friday.
• This is the second time Goldman Sachs boosted its price target since November.
• “Increased profit estimates are the driver of the revision,” Goldman’s chief US equity strategist David Kostin said.

Goldman Sachs chief US equity strategist David Kostin is getting more bullish on the stock market, according to a Friday note.

Kostin bumped his 2024 year-end S&P 500 price target to 5,200, representing potential upside of about 4% from current levels.

This is the second time Kostin has increased his 2024 S&P 500 price target. Kostin first set a 4,700 objective and November, and then increased it to 5,100 in December.

Driving Kostin’s recent bullishness is better-than-expects fourth-quarter earnings results.

“Increased profit estimates are the driver of the revision. Our upgraded 2024 EPS forecast of $241 stands above the median top-down strategist forecast of $235 and reflects our expectation for stronger economic growth and higher profits for the Information Technology and Communication Services sectors,” Kostin said.

Kostin said valuation multiples should stay about the same throughout the year, with much of the upside being driven by earnings growth rather than a re-rating in multiples.

“Higher earnings means higher prices, but we continue to expect little change in the S&P 500 valuation multiple between now and year end,” Kostin said.

The S&P 500 currently trades at a forward price-to-earnings ratio of 20x.

Earnings results from mega-cap tech giants showed impressive revenue and profit results in the fourth-quarter, as well as solid outlooks for 2024. Much of the recent earnings growth seen in the S&P 500 has been entirely driven by mega-cap tech.

“If NVDA reports estimates in line with consensus, the Magnificent 7 will have grown sales by 15% year/year and lifted margins by 582 bp year/year, leading to earnings growth of 58%. In contrast, the remaining 493 stocks in the S&P 500 grew sales by 3% year/year while margins contracted by 56 bp and earnings fell by 2%,” Kostin said.

Aiding Kostin’s bullish estimate revisions is the expectation that the US economy will post solid economic growth in 2024. Economists at Goldman Sachs recently increased their US GDP growth expectations thanks to sustained strength in consumer spending and residential investment, according to the note.

“The clearest upside risks to our EPS forecasts are stronger GDP growth than we currently anticipate or continued upside earnings surprises from the mega-caps,” Kostin said.