Goldman Sachs has revised its year-end S&P 500 target to 5,200 just ahead of Nvidia Corp.’s crucial earnings this week. The forecast hinges largely on Big Tech’s ability to maintain robust profits.
David Kostin, chief U.S. equity strategist at Goldman Sachs, stated, “Our upgraded 2024 EPS forecast of $241 (8% growth) stands above the median top-down strategist forecast of $235 (6% growth) and reflects our expectation for stronger economic growth and higher profits for the Information Technology and Communication Services sectors, which contain 5 of the ‘Magnificent 7’ stocks.”
Goldman Sachs joins other bullish forecasters like Oppenheimer’s John Stoltzfus and Fundstrat’s Tom Lee, who also predict a 5,200 finish for the S&P 500. This optimism follows Goldman’s previous adjustment from 4,700 to 5,100 in late December. RBC Capital and UBS have also raised their S&P 500 forecasts earlier this year.
Behind the optimistic outlook lies an upbeat economic forecast, with Goldman’s economists revising their 2024 real U.S. GDP growth forecast to 2.4% due to stronger consumer spending and residential investment. However, the bank emphasizes the importance of Big Tech’s performance in sustaining this outlook.
Analysts highlight Nvidia’s upcoming earnings as a significant event, with expectations for a more than 700% surge in earnings per share from the same quarter last year. The company’s performance is seen as pivotal for market sentiment.
Goldman Sachs expects Information Technology and Communications Services sectors, which include five of the Magnificent 7 (Meta, Microsoft, Apple, Alphabet, and Nvidia), to lead in earnings growth within the S&P 500 this year. However, the rest of the index is expected to see more modest improvements.
The bank underscores that Big Tech’s strength has also influenced upward revisions in earnings estimates among its peers, with Magnificent 7 earnings estimates and margins forecasts outpacing those of other stocks.
While Goldman Sachs acknowledges potential upside risks from stronger-than-expected U.S. growth or positive surprises from mega-caps, it also warns of downside risks from disappointing macroeconomic growth or underperformance from major stocks.
Additionally, any acceleration in input cost inflation could dampen the outlook for profit margins and overall corporate earnings growth.
