2024-02-21 04:52:01
Will U.S. stocks rise? Major bank targets continue to increase (REUTERS / Reuters)
Wall Street’s year-end targets for the S&P 500 continue to rise. The index has started hitting new highs repeatedly in 2024. In less than two months this year, the S&P 500 has risen above the average year-end target of many strategists on Wall Street. Now, two strategists are raising their forecasts for where stocks will go in 2024.
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Goldman Sachs raised its year-end target to 5,200 points from 5,100 points. UBS’s investment banking equity strategy team led by Jonathan Golub even raised its target from 5,100 points to 5,400 points, which represents more than 8% upside potential from Tuesday’s closing price.
“While we are optimistic about the outlook, it appears we are not optimistic enough,” Golub wrote in the note.
The reason why Goldman Sachs and UBS are optimistic that stocks can rise further is that the outlook for corporate profits this year is more optimistic than previously forecast.
According to FactSet, fourth-quarter earnings for the S&P 500 are expected to rise 3.2%, up from the 1.9% expected a month ago. They expect the S&P 500 to rise 10.9% for the full year of 2024.
David Kostin, chief U.S. equity strategist at Goldman Sachs, earlier wrote in a research report upgrading his forecast for the S&P 500 that earnings growth will be the “main driver” for the stock market to keep rising in 2024.
Kostin pointed out that the more optimistic earnings outlook stems from “increased outlook for U.S. economic growth and large corporate profit margins.” Specifically, Goldman Sachs predicts that it will raise its earnings growth forecast due to the satisfactory performance of large companies.
In the past three months, the profit forecasts of the “Big Seven” technology stocks (Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia) have been raised by 7%, and profit margin forecasts have increased by 0.86 percentage points. This scenario is very different from the remaining 493 S&P 500 index components, whose profit forecasts were cut by 3% and profit margins by 0.3 percentage points.
That leads Goldman to believe the technology (XLK) and communications services (XLC) sectors, which include five of the Big Seven, will lead earnings growth this year.
“We expect demand drivers, including AI growth and consumer strength, to support revenue growth in these industries, while margins will continue to expand as these companies focus on improving operating efficiencies,” Kostin wrote.
“Margins for other S&P companies should also improve in 2024, but to a much smaller extent,” he added.
Goldman Kostin wrote: “We expect demand drivers, including AI growth and consumer strength, to support revenue growth in these industries, while margins will continue to expand as these companies focus on improving operating efficiencies.” (Goldman Sachs Global Investment Research)
Of course, there is still an undercurrent to the stock market’s rise, and the pressure in recent days has come from the possibility that inflation will not fall. On February 13, the consumer price index rose more than expected, sparking investor concerns that the Federal Reserve might not cut interest rates as scheduled, and the stock market was sold off.
But UBS Golub pointed out that continued high inflation may not be all bad for companies.
“Returns and profits are calculated in nominal currency terms. In other words, rising inflation tends to be positive for stock prices,” Golub wrote. “While stocks sold off last week on higher (inflation) data, we can demonstrate that the data shows demand remains strong and future returns are promising.”
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