Goldman Sachs, one of Wall Street’s leading investment banks, has raised its year-end target for the S&P 500 to 5,200. The bank’s chief U.S. equity strategist, David Kostin, attributes this increase to the crucial role played by Big Tech companies in driving economic growth. The upgraded target reflects Goldman Sachs’ expectation for stronger economic growth and higher profits in the Information Technology and Communication Services sectors.
Goldman Sachs’ new target aligns with other bullish forecasts from Wall Street analysts. Oppenheimer’s John Stoltzfus and Fundstrat’s Tom Lee also predict a year-end finish of 5,200, while Ed Yardeni of Yardeni Research goes even further with a target of 5,400. This optimism comes after Goldman Sachs previously raised its target from 4,700 to 5,100 in late December. Other financial institutions, such as RBC Capital and UBS, have also increased their S&P 500 forecasts.
The bank’s positive outlook is based on a more bullish economic forecast. Goldman Sachs economists have raised their 4Q/4Q 2024 real U.S. GDP growth forecast to 2.4% due to stronger consumer spending and residential investment. The bank expects an S&P 500 forward price/earnings multiple of 19.5 times, slightly below the current 20 times.
However, Goldman Sachs emphasizes that the success of their forecast relies heavily on the performance of Big Tech companies. Kostin and his team highlight the ongoing fundamental strength of the “Magnificent Seven” stocks: Meta Platforms, Microsoft, Apple, Alphabet, Tesla, Amazon, and Nvidia. These companies have demonstrated the ability to sustain profit margins despite slowing inflation.
Analysts have specifically highlighted Nvidia’s upcoming earnings report as a potentially significant moment for the stock market. Expectations for Nvidia’s earnings per share are high, with a more than 700% surge from the same quarter last year. Goldman Sachs strategists believe that if Nvidia reports in-line estimates, the Magnificent Seven stocks will have achieved impressive sales and earnings growth.
Goldman Sachs also notes that the strength of Big Tech has driven higher forecasts among its peers. Earnings estimates for the Magnificent Seven have been revised up by 7% in the past three months, while the rest of the S&P 500 has seen downward revisions. The bank acknowledges that stronger-than-expected U.S. growth or continued positive surprises from mega-cap stocks could be upside risks to their forecasts. Conversely, disappointing growth or an acceleration in input cost inflation could pose downside risks to corporate earnings.
Overall, Goldman Sachs’ decision to raise its year-end S&P 500 target to 5,200 reflects its confidence in the ability of Big Tech companies to drive economic growth. The bank’s optimistic forecast aligns with other bullish predictions from Wall Street analysts, highlighting the importance of these tech giants in shaping the stock market’s performance. Investors will eagerly await Nvidia’s earnings report as a potential indicator of future market trends.
