Goldman Sachs raises S&P 500 target on better profit outlook

The bank’s equity strategists, led by David Kostin, believe the U.S. stock benchmark index will end this year at 5,600, up from the 5,200 level they forecast in February. The new target implies the gauge will rise by about 3% from Friday’s close.

Goldman’s upgraded target is on par with the highest target on Wall Street given by Jonathan Golub of UBS Group AG and Brian Belsky of BMO Capital Markets.

“This target upgrade is driven by lower-than-average negative earnings revisions and a higher fair value P/E multiple,” Kostin, the firm’s chief U.S. equity strategist, said in a note to clients Friday.

Bloomberg

The upgrade comes a month after Kostin reiterated the firm’s 5,200 target, saying the 500-member gauge had no room for any further upside until December. The firm’s strategists first introduced their 2024 target in November, raised it in December and again in February. The S&P 500 closed at 5,431.60 on Friday.

While the firm’s strategists maintained their earnings per share forecasts for 2024 and 2025, they noted that strong earnings growth by the top five megacap technology stocks has offset the “typical pattern of negative revisions to consensus EPS estimates.” Kostin also raised the S&P 500’s price-earnings multiple to 20.4 from 19.5, which he considers reasonable.

Kostin considered several other scenarios in which stocks could rise even higher than his new baseline forecast. If gains broaden and lift the S&P 500 Equal Weight Index, the main, cap-weighted benchmark could rise another 9% to 5,900 before the close of 2024. In his most optimistic case, if mega-cap “exceptionalism” persists, the gauge could rise to 6,300 by year’s end.

Conversely, if earnings estimates prove overly optimistic or investors’ fears of a recession resurface, the S&P 500 could correct by about 13% and fall to 4,700.