Goldman Sachs strategist has raised the year-end target price for the S&P 500 Index (SPX) for the third time, in line with some of Wall Street's most optimistic analysts.

According to a report last Friday from a team of Goldman Sachs strategists led by David Kostin, due to "below-average negative earnings revisions and higher fair value P/E ratios," the bank currently expects the S&P 500 Index to rise to 5,600 points in 2024 under benchmark scenarios, up from its previous estimate of 5,200, setting another historic high. Goldman Sachs has already raised its year-end target price for the S&P 500 Index in February and December 2023.

After a strong 2023, US stocks continued the bull market, and most strategists originally expected returns this year to be below average. But since the beginning of the year, they have raised their forecasts for the S&P 500 Index in 2024. The index hit a new record high for the 29th time last Thursday.

Currently, Goldman Sachs' view is consistent with that of Brian Belski of BMO Capital Markets, who raised his target price for the S&P 500 Index to 5,600 points in May, becoming Wall Street's most optimistic bull at that time. However, this weekend, Evercore strategists’ expectations surpassed Goldman Sachs and BMO Capital Markets, setting a target price of 6,000 points.

According to Costin and his team, the S&P 500 index has risen by more than 13% this year, thanks to the strong performance of five stocks that have collectively risen by 45%, accounting for 25% of the market cap of the index. The earnings per share of these five stocks have increased by 84%, while that of ordinary stocks has only increased by 5%. This is because people's enthusiasm for artificial intelligence has pushed up valuations. $Microsoft (MSFT.US)$and$NVIDIA (NVDA.US)$, $Alphabet-A (GOOGL.US)$and$Amazon (AMZN.US)$ and $Meta Platforms (META.US)$

"We currently expect 2025 consensus bottom-up EPS estimates of $279 per share, down just 2% from the historical average revision value," they said. But they still expect EPS estimates for 2024 and 2025 to be $241 (up 8%) and $256 (up 6%), respectively, because they believe general earnings forecasts for next year are "too optimistic."

Their valuation model shows that the S&P 500 Index's P/E ratio will reach 20.4 times by the year-end, which is 3% lower than its current 21.1 times.

Goldman Sachs also listed other scenarios that the S&P 500 index may face, such as a "catch-up" scenario (i.e. other stocks catching up with the rise of large-cap stocks). In that case, the index will close at 5,900 by the end of the year, and the P/E ratio of equal-weighted index such as S&P 500 index will expand to 18 times, reaching the highest level before the epidemic.

They also pointed out a "downward" scenario, in which the index will end at 4,700 points. Kostin and his team said, "The main risk facing today's market leaders is that current analysts' estimates are proven too optimistic," and the optimism of artificial intelligence will bring higher thresholds for upward movement.

The third scenario is that if large-cap stocks continue to outperform, the index's closing price will reach 6,300 points. The fourth scenario is that if investors begin to be cautious about the economy and start digesting higher economic recession risks, the index's closing price may reach 4,800 points.

Kostin said: "Although our economists still predict that US economic growth will be higher than the market consensus, further weak growth data may rekindle concerns about economic slowdown and push the S&P 500 Index P/E ratio down to 18 times." In this case, investors may "tend to buy those deemed safe large-cap stocks, thus pushing up the premium of the overall stock index relative to the equal-weight index and limiting some downside potential."

They also said that this downside risk will also be limited by the Federal Reserve, which will have more room to cut interest rates if economic data starts to deteriorate.

Kostin and his team also added that the US election remains a major risk for the stock market. Historically, in election years, the index has fallen 4% between late October and early November, but the stock market tends to rebound even higher after the election is over.

Edited by Jeffrey