Stocks Are Getting More Bullish as Goldman Sachs Increases Its Forecast for the S&P 500 to 6,000

Goldman Sachs is looking past the current market volatility and believes that conditions are setting up favorably for stocks through the end of the year and into 2024. The investment bank has increased its target for the S&P 500 in 2024 to 6,000, up from a previous estimate of 5,600. This makes Goldman’s projection one of the highest on Wall Street, tied with Evercore ISI for the second-highest estimate, according to CNBC Pro’s Market Strategy Survey. This new target suggests a potential upside of 4.3% from last Friday’s closing price.

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In addition to the 2024 forecast, Goldman Sachs has raised its 12-month S&P 500 target to 6,300 from 6,000. This points to a broader market gain of 9.5%, underscoring the bank’s optimism for continued growth over the next year.

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This bullish call came as U.S. stock futures were starting the week on a lower note, with investors focusing on rising interest rates and climbing oil prices. However, Goldman Sachs believes that earnings growth will be the primary driver pushing the stock market higher before the year concludes.

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David Kostin, the bank’s chief U.S. equity strategist, wrote in a note that their earnings per share (EPS) estimates for the S&P 500 reflect a stable macroeconomic environment. Kostin projects earnings growth of 8% in 2024 and 11% in 2025 for the S&P 500, highlighting that the broader economic backdrop remains supportive of modest profit margin expansion. He noted that companies are expected to continue increasing their prices at a rate that outpaces the growth in input costs, which should further support profitability.

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Kostin also pointed to several specific factors that could further boost earnings in the near future. Among these are a reduction in the unique one-time charges that have negatively impacted certain companies in 2023. Additionally, the recovery in the semiconductor industry is expected to lift profits in the technology sector, which could provide an extra push for stock market growth.

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Despite Goldman’s optimistic outlook, last week was a challenging one for the major stock indices. Investors have been trying to assess how much the Federal Reserve will cut interest rates in the future. After Friday’s much stronger-than-expected September jobs report, traders have largely ruled out the possibility of a more significant 0.5% rate cut by the Fed. Instead, they now see an 87% chance of a smaller, 0.25% rate reduction, according to the CME Group’s FedWatch tool.

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The S&P 500 has struggled in the early part of October, currently posting negative performance for the month. However, Goldman Sachs is maintaining its positive stance on the future, believing that the current pressures on the market will ultimately be overcome by earnings growth and macroeconomic stability.

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The third-quarter earnings season is set to begin later this week, and analysts are expecting another quarter of positive earnings growth for the S&P 500. According to FactSet, earnings are anticipated to increase for the fifth consecutive quarter, with a projected year-over-year growth of 4.2% for the third quarter. This continuation of earnings expansion is seen as a key factor in supporting the market’s upward trajectory.

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Elsewhere on Wall Street, Amazon has come into focus as Wells Fargo downgraded the tech giant’s stock from "overweight" to "equal weight." This change in rating reflects a shift in Wells Fargo’s outlook for Amazon’s growth potential. Analyst Ken Gawrelski noted that back in June 2023, Amazon was on the verge of significant positive developments in two major business areas: Amazon Web Services (AWS) and North America Retail. Those predictions largely played out, leading to solid performance.

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However, Gawrelski now believes that the excitement surrounding Amazon’s margin expansion may have been somewhat overestimated. Although Amazon is still likely to experience margin growth over the long term, he cautioned that the process will not be linear. Gawrelski added that both he and the broader market may have become too optimistic in their forecasts for margin growth between 2023 and 2025, acknowledging that the reality may involve a slower, more uneven trajectory than originally expected.

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Goldman Sachs’ positive outlook for the S&P 500 contrasts with some of the more cautious tones being struck elsewhere on Wall Street, including in the case of Amazon’s downgrade. Nonetheless, Goldman remains confident that factors such as earnings growth, a recovering semiconductor cycle, and a steady macroeconomic environment will help propel stocks higher through the end of the year and beyond. The bank’s forecast of 9.5% gains over the next 12 months provides a hopeful narrative for investors despite the short-term challenges that markets are currently facing.

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