The main indices of Wall Street live a 2024 of strong profits, which have forced many analysts to recalibrate the predictions made at the end of 2023. The experts at Goldman Sachs they deepened the analysis by drawing four possible scenarios in which the US equities until the end of the year, and according to which the S&P 500 will close the course between 4,500 and 6,000 points.
In this sense, the firm highlights that, after the latest increases, the S&P 500 has already reached its previous forecast for the end of the year of 5,200 points, and this bullish trend can count on a journeyas they anticipate earnings per share (EPS) growth of 8% in 2024 and 6% in 2025. However, they also detect downside risks, so they include all possible outcomes in their range of scenarios.
“We maintain our EPS forecast of S&P 500 above consensus by 2024 ($241, 8% year-on-year growth) and 2025 ($256, 6% growth). Our EPS growth forecast for 2024 is driven by a 6% sales increase and 39 basis points of margin expansion, to 11.5%,” they said.
1. “UPDATE”
The first scenario proposed by the firm, which it has called “updating”, foresees auba of the S&P 500 to 5,800 points at the end of the yearwhich implies a revaluation close to 11% from current price levels.
In addition, the multiple of the equal-weight index, which gives the selective firms a fixed weight, “would expand to 18 times, equaling its pre-pandemic record of 2018.”
“In our view, a change in the outlook for interest rates without a deterioration in the economy is necessary for the market rally to broaden. A potential catalyst is greater confidence in the disinflation narrative,” they said.
In this way, forecasts about the Federal Reserve’s decisions will continue to guide the market, after “optimism” about the arrival of rate cuts at the end of 2023, which “drove a 26% rally in the Russell 2000.”
“Today, much of the market remains burdened by concerns about ‘higher for longer’ interest rates and a high cost of capital as investors look for quality attributes,” they added.
2. “CATCH-DOWN”
The second possible scenario proposed by Goldman Sachs analysts is that of “catch-down”, according to which the S&P 500 index would end 2024 at 4,500 pointsfor which a correction of a magnitude close to 14% would be necessary from this moment.
“A risk for today’s market leaders is that current sales growth estimates prove too optimistic. We previously discussed the fate of the ‘Magnificent 7’ stocks, which depends on their ability to meet lofty growth expectations. “they explained.
According to analysts’ projections, the firms that make up the ‘Magnificent 7’ to record 12% compound annual growth rate in 2023-25 compared to the 3% projected for the remaining 493 selective firms. In this way, “the risk of accumulation among the most important stocks and a positioning of investors on the limit could exacerbate any ‘catch-down’ scenario.”
“The latest hedge fund filings showed accumulation hit a record high during the fourth quarter of 2023. Every mega-cap tech stock except Tesla sits at the top of our list of favorite hedge fund long positions “, they highlight.
3. “Continued exceptionalism in megacaps”
Thirdly, Goldman Sachs shows the possibility of a scenario of “continued exceptionalism among mega-caps”, whereby the S&P 500 index would close the year at 6,000 points, what would mean a revaluation of 15% in the most optimistic of scenarios.
“We previously argued that current stock growth is different from the experiences of 2021 and the tech bubble because investors today are focused on profitability. Furthermore, although optimism about AI seems high, long-term growth expectations and the valuations of the largest TMT (technology, media and telecommunications) stocks are still far from bubble territory,” they assert.
In addition, the conclusions of the Developer Conference that Nvidia held last week “were encouraging and point to conditions of strong demand and limited supply” in the sector.
4. “Fear of recession!
Finally, analysts highlight that “if investors become concerned about the economic outlook and the risk of recession increases, the S&P 500 index would close the year at 4,500 points”and they emphasize that after several months of better-than-expected readings “the surprises in US economic data have now changed to negative.”
“Although our economists still predict a soft landing, further weakness in growth data could reignite investor anxiety,” they say.
However, they clarified that “theThe disadvantages would be limited in this scenario,” since “the Federal Reserve has ample room to make cuts in response to a negative growth shock.”
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
