Goldman raises S&P 500 year-end forecast, citing strong earnings growth

Published Mon, Jun 17 202410:16 AM EDTUpdated Mon, Jun 17 202410:34 AM EDT

Goldman Sachs sees upside for the S & P 500 for the rest of this year as corporate earnings strengthen. Chief U.S. Equity Strategist David Kostin hiked his year-end S & P 500 price target by 400 points, or about 7.7%, to 5,600. That new forecast implies that the broad index can rise about 3% from where it finished last week, equating to a total return of more than 17% for the full year. There are two main drivers for Kostin's call. First, there have been more muted negative earnings revisions than typically seen. Second, Godman raised its fair value price-earnings multiple to 20.4 from 19.5. "Our previous forecast assumed a year-end forward 12-month multiple of 19.5x and an expectation that, by year-end, the current bottom-up consensus 2025 EPS estimate would be revised halfway to our top-down forecast," he wrote to clients. "Our updated forecast incorporates a smaller downward revision to consensus EPS and a larger P/E premium for mega-cap tech." .SPX YTD mountain S & P 500 index in 2024. Kostin said the bottom-up consensus estimate for earnings per share in 2025 of $279 should fall by just 2% through the end of the year. That's about half of what the average revision has been historically, he noted. The strategist acknowledged rapid earnings growth at Microsoft , Nvidia , Alphabet , Amazon and Meta , where first-quarter profits soared 84% from the prior year versus just 5% for the average S & P 500 company. That helps explain the narrow leadership in the current market rally. However, he said that gap is supposed to narrow from 31 percentage points in all of 2024 to just 8 points in 2025 and 4 in 2026, based on consensus earnings estimates. Goldman also updated its target for three and 12 months down the line. Kostin's expectation of 5,400 in three months would mean that the index would pull back by less than 1%, while the 5,700 outlook implies a 4.9% gain. He said that there are factors beyond earnings and the price-earnings multiple, most notably the presidential election, that can affect performance. Specifically, Kostin said the S & P 500 could have "catch-up" or "catch-down" scenarios, ending the year as low as 4,700 or as high as 5,900. A close at 4,700 would mean a 13.5% correction from Friday's ending level, while 5,900 suggests an 8.6% rally ahead. On top of that, Kostin said continued "exceptionalism" from megacap tech stocks could drive the index to 6,300 by the end of the year. That's 16% higher than where the index ended last week and more than 32% above where it finished 2023. On the other hand, the strategist said increased recession fears could push the index down to 4,800 when 2024 finishes. That's 11.6% off where the S & P 500 wrapped up last week. Kostin's main 5,600 target places him 4.4% above the average market strategist on Wall Street, according to CNBC Pro's survey . The S & P 500 has climbed nearly 14% since the start of 2024.