Citing a stronger earnings outlook for index businesses, Goldman Sachs boosted its year-end goal for the benchmark S&P 500, opening a new tab to 5,200, implying a roughly 4% upside from current levels.
The firm had previously predicted that the index would close 2024 at 5,100, but it had raised its estimate from 4,700 in December due to concerns about declining inflation and anticipations that the US central bank would lower interest rates throughout the year.
An improving U.S. economic outlook and higher mega-cap profit margins are expected to drive Goldman’s prediction of 8% profit growth for S&P 500 companies this year, released on Friday.
Lead strategist at Goldman Sachs, David Kostin, said, “We expect strong world GDP growth and a slightly weaker dollar will support EPS, while lower rates and lower oil prices will be a slight drag.”
Kostin anticipates that the combined profits of the S&P 500 in 2024 will increase due to the mega-cap stocks’ strong earnings, particularly those in the Magnificent 7. Kostin stated that revenue growth and margin expansion are anticipated to be driven by advancements in artificial intelligence and consumer power.
Among the S&P 500 sectors, he anticipates that the Magnificent 7 stocks will report the highest earnings increase.
Operating margins should rise for the remaining index members as well, but to a “much smaller” extent, according to Kostin, as long as strong sales growth is accompanied by modest further price disinflation and input expenses, such as wage growth, continue to drop.