Goldman already raised its 2024 forecast because of market surge — now sees S&P 500 going to 5,100

Published Mon, Dec 18 20236:31 AM ESTUpdated Mon, Dec 18 20239:24 AM EST

Goldman Sachs is already raising its 2024 stock market forecast, and the new year isn't even here yet. The S & P 500 will rise 8% to 5,100 next year, according to chief U.S. equity strategist David Kostin, who cited falling yields and the recent Federal Reserve change to a more lenient monetary policy. The S & P 500 rallied 5% in the past month to already meet Kostin's original 2024 forecast of 4,700 for the new year that he gave back in November . "Lifting our 12-month S & P 500 target to 5100 as inflation falls, the Fed turns dovish, and real yields plunge," wrote Kostin in a note Friday. .SPX YTD mountain S & P 500 year-to-date Kostin may not be alone among Wall Street equity strategists forced to raise their 2024 outlooks following the big rally since late October and change in tone by the Fed. The S & P 500 is up more than 20% since its late October low and sits just 2% from a record as a series of economic data showed inflation was slowing faster than expected. The comeback gained steam last week as the Federal Reserve forecast three interest rate cuts next year, a sign to traders that the central bank was finally relaxing its tough monetary stance. The 10-year Treasury yield, which scared equity investors by rising above 5% back in October, has tumbled to 3.9%. "The new year-end 2024 target reflects a P/E greater than 19x compared with our prior target of 4700 that forecast a multiple of 18x," wrote Kostin, citing lower rates as a reason equities deserve a higher valuation. Goldman sees 5% earnings growth in 2024, which it says is above the Wall Street consensus. The firm thinks earnings could increase even more than that because of loosening financial conditions and stronger economic growth. How to play it Investors should buy beaten-down cyclical stocks with weak balance sheets and small caps to ride the comeback, Goldman recommended. Goldman added investors could buy members of its high Sharpe ratio basket to play the rally. These stocks have the highest "prospective risk-adjusted returns" relative to their peers. In other words, these names offer higher returns but a ride just as smooth as its peers. According to Goldman, the typical member of this basket will return four times as much as the median S & P 500 member but with the same level of volatility.