Goldman Sachs
raised its target for the S&P 500 for the second time since December. It doesn’t mention the Federal Reserve in its reasoning.
With the index currently near a record high above 5,000, the investment bank now sees it ending 2024 at 5,200, up from its last estimate of 5,100 in December. Two months ago, the upgrade from 4,700 was based on the outlook for lower interest rates and a dovish Fed.
“Our target upgrade today reflects an improved earnings outlook,” analysts led by David Kostin wrote in a note published Feb. 16.
Goldman’s optimism reflects the broader sentiment since the start of the year that has sent shares higher even as expectations for Fed interest-rate cuts have been pushed back. Markets were expecting the central bank to start lowering interest rates in March just a few weeks ago. Strong data on growth and inflation have now pushed back expectations for the first move lower to June.
Shares’ steady march higher might raise some concern that investors are getting ahead of themselves. The highest federal-funds rate since 2001 may just be delayed in having an impact. Euphoria that interest rates have probably peaked may be clouding traders’ view for companies’ prospects.
Lower interest rates are usually good for stocks because they make it cheaper for companies to borrow money, make riskier investments such as stocks more attractive by lowering yields on bonds, and support the economy more widely.
But even after the steepest increase in interest rates in a generation over the past two years, companies and the economy have performed surprisingly well. Gross domestic product increased 2.5% in 2023, accelerating from 1.9% in 2022 when interest rates were considerably lower.
Goldman also lifted its earnings-per-share forecast for the broad S&P 500 index for this year and next, representing growth of 8% earnings this year and 6% in 2025. It noted that the Magnificent Seven technology stocks—
Microsoft,
Apple,
Alphabet,
Amazon,
Meta,
Nvidia,
and
Tesla
—that have driven the majority of the index’s recent gains remain strong. It expects the information technology and communication services part of the index to continue to outperform the rest.
Write to Brian Swint at [email protected]
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