TLDR:
- Goldman Sachs raised S&P 500 targets for year-end and next 12 months
- Strong job growth reported in September, unemployment rate dipped to 4.1%
- Analysts expect 4.2% earnings growth for S&P 500 in Q3
- S&P 500 trading at higher than average price-to-earnings ratio
- Some experts bullish on stocks, citing broadening rally and positive sentiment
Goldman Sachs has revised its outlook for the S&P 500 index, raising both its year-end and 12-month targets. The Wall Street firm now expects the benchmark index to reach 6,000 by the end of 2024, up from its previous forecast of 5,600.
For the next 12 months, Goldman has set a new target of 6,300, an increase from its earlier projection of 6,000.
The upward revision comes on the heels of positive economic data, particularly in the labor market. The latest jobs report showed that non-farm payrolls rose by 254,000 in September, a significant increase from August’s 159,000. The unemployment rate also improved, dropping to 4.1% from 4.2% in the previous month.
Goldman Sachs analysts, led by David Kostin, cited expectations of higher margin growth for corporate companies and a steady macroeconomic outlook through 2025 as key factors behind their more optimistic projections.
The firm has also raised its 2025 earnings per share (EPS) estimate for the S&P 500 to $268 from $256, reflecting an 11% increase on an annual basis. However, Goldman maintained its 2024 EPS forecast at $241.
The revised year-end target of 6,000 implies a potential upside of 4.32% from the index’s closing value of 5,751.07 on October 4, 2024. This aligns with historical data presented by Scott Rubner, managing director for global markets at Goldman Sachs, who noted that since 1928, the S&P 500 has risen an average of 4% from October 27 through year-end.
The positive outlook is supported by recent economic data suggesting a strong foundation for continued growth. In August, reports indicated that the US economy grew faster than initially expected in the second quarter, driven by robust consumer spending and rebounding corporate profits.
While Goldman Sachs has taken a bullish stance, it’s important to note that the current market environment presents a mixed picture.
Analysts expect earnings per share for the S&P 500 to increase by 4.2% in the third quarter compared to the previous year, according to FactSet. While this represents a slowdown from the 11.3% growth seen in the second quarter, it still indicates positive momentum.
However, market valuations have reached levels that some consider extended. As of October 4, the S&P 500 was trading at 21.4 times analysts’ earnings estimates for the next 12 months, well above both the five-year average of 19.5 and the ten-year average of 18.0.
The strong jobs data has also led to speculation about the Federal Reserve’s next moves. Many experts believe the robust employment figures will likely lead the Fed to be less dovish in its approach to interest rates. Interest-rate futures now point to a 97% probability of a 25 basis point rate cut at the Fed’s next meeting, with only a 3% chance of no change.
Despite the generally positive outlook, some analysts caution against overenthusiasm. Lara Castleton, U.S. head of portfolio construction and strategy at Janus Henderson, warned against putting too much emphasis on a single jobs report, particularly given the recent trend of downward revisions.
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