Goldman Sachs raises S&P 500 target thanks to positive earnings outlook

(Bloomberg) — Goldman Sachs Group Inc. strategists have raised their year-end target for the S&P 500 Index for a third time, reflecting Wall Street’s optimistic outlook for earnings growth and the U.S. economy.

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The bank’s equity strategists led by David Kostin see the U.S. stock benchmark index ending the year at 5,600, up from the 5,200 level they forecast in February. The new target implies an upside of about 3% from Friday’s closing price.

Goldman’s upgraded target joins Jonathan Golub of UBS Group AG and Brian Belski of BMO Capital Markets for the highest on Wall Street.

The target upgrade is “driven by milder-than-average negative earnings revisions and a higher price-to-earnings ratio,” Kostin, the firm’s chief U.S. equity strategist, wrote in a note to clients on Friday.

The upgrade comes a month after Kostin reiterated the company’s 5,200-member target, stating there was no room for upside in the 500-member poll through December. The company’s strategists first introduced their 2024 target in November, before raising it in December and again in February. The S&P 500 closed at 5,431.60 on Friday.

While the company’s strategists maintained their 2024 and 2025 earnings per share forecasts, they noted that the robust earnings growth of the five largest mega-cap tech stocks has the “typical pattern of negative revisions to consensus earnings per share estimates.” compensated. Kostin also raised the S&P 500’s price-to-earnings ratio, which he considers reasonable, from 19.5 to 20.4.

Kostin has laid out several other scenarios where shares could rise even higher than his new baseline forecast. If gains widen and the S&P 500 Equal Weight Index rises, the main capitalization-weighted benchmark could rise another 9% to 5,900 before 2024 ends. At its most optimistic, if megacaps’ “exceptionalism” continues, the indicator could rise to 6,300 by the end of the year.

Conversely, if earnings expectations prove too optimistic or if recession fears resurface among investors, the S&P 500 could see a correction of about 13% and fall to 4,700.

–With help from Elena Popina.

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