The high-water mark for Wall Street’s S&P 500 predictions has moved up yet again.
The benchmark index has hit new record highs to kick off 2024, surpassing the average Wall Street strategist year-end target in less than two months.
Now, two strategists are boosting their projections for how far stocks can run in 2024.
Last week, Goldman Sachs raised its year-end target from 5,100 to 5,200.
On Tuesday, UBS also increased its target, with the UBS Investment Bank equity strategy team led by Jonathan Golub now forecasting the S&P 500 to end the year at 5,400, up from a previous call of 5,100.
This reflects nearly an 8% increase from Tuesday’s opening price.
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Optimistic Outlook on Corporate Earnings
“Despite our bullish outlook, it appears we were not bullish enough,” Golub wrote.
Both Goldman Sachs and UBS expressed a more upbeat outlook for corporate earnings this year than previously forecast, explaining their confidence in further stock upside.
Their new predictions coincide with S&P 500 companies’ earnings expectations, which are now projected to grow 3.2% in the fourth quarter, up from a 1.9% projection a month ago, according to FactSet.
Analysts also forecast the S&P 500 to grow by 10.9% for the full year 2024.
In a research note, Goldman Sachs chief US equity strategist David Kostin emphasized that earnings growth will be “the primary driver” of remaining upside for stocks during 2024.
The optimistic outlook on earnings is attributed to upgraded forecasts on US economic growth and mega-cap profit margins, particularly driven by mega-cap companies.
Tech and Communication Sectors Leading the Charge
Goldman Sachs believes that the Technology (XLK) and Communication Services sectors (XLC), which include five of the seven “Magnificent Seven” tech stocks, will lead the earnings growth in 2024.
Kostin cited increased earnings estimates and upward revisions in margin expectations for these tech giants.
He highlighted factors such as AI growth and consumer strength supporting revenue growth, alongside ongoing margin expansion due to operational efficiency efforts.
Also Read: China Urges U.S. to Lift Sanctions on Chinese Firms
Acknowledging Market Risks Amidst Inflation Concerns
Despite the bullish sentiment, there are still risks to the stock market rally, notably concerning inflation. Recent fears of sticky inflation prompted a sell-off in Feb following a hotter-than-expected inflation report, raising concerns about the Federal Reserve’s interest rate policies.
However, UBS’s Golub points out that higher inflation might not entirely be negative for corporations.
He noted that returns and profits are measured in nominal dollars, suggesting that higher inflation tends to be positive for stock prices.
While acknowledging market reactions to robust Consumer Price Index and Producer Price Index reports, Golub indicated that these demand-driven readings could be constructive for future returns.
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