Goldman raises S&P 500 target to 5,200, cites strong earnings

Published Tue, Feb 20 20249:38 AM ESTUpdated Tue, Feb 20 20249:56 AM EST

Goldman Sachs raised its S & P 500 year-end target to 5,200 in anticipation of stronger-than-expected earnings — especially in megacaps. "We raise our year-end S & P 500 index target to 5200 (from 5100), representing 4% upside from the current level," David Kostin, chief U.S. equity strategist at Goldman Sachs, wrote in a note late Friday. "Our target upgrade today reflects an improved earnings outlook." The upgrade comes on the back of a stronger-than-expected fourth-quarter earnings season. Kostin noted companies are on track to grow earnings 7% on a yearly basis, higher than analyst expectations of just 3% growth when the season started. Given this, the strategist raised his 2024 S & P 500 earnings per share forecast to $241 from $237 previously, due to increased optimism for the U.S. economy, as well as the ability of megacaps to sustain profit margins. In fact, the strategist expects that the "fundamental strength" of megacaps should continue to boost profits for the overall index this year, especially if Nvidia meets expectations when it reports earnings this week. "If NVDA reports estimates in line with consensus, the Magnificent 7 will have grown sales by 15% year/year and lifted margins by 582 bp year/year, leading to earnings growth of 58%," he wrote. "In contrast, the remaining 493 stocks in the S & P 500 grew sales by 3% year/year while margins contracted by 56 bp and earnings fell by 2%." He expects the information technology and communication services sectors, which hold five of the "Magnificent Seven" stocks, will outperform this year. Kostin also sees the other stocks in the broad index improving their margins, though not as much as the megacaps. "We expect demand drivers including AI growth and consumer strength will support revenue growth in these sectors, while margins will continue to expand as these companies," Kostin wrote. Kostin has raised his 2024 year-end outlook before. In December, the strategist raised his target to 5,100 from 4,700, his original forecast, following a dovish pivot from the Federal Reserve that bolstered the interest rate outlook. The new call is optimistic. On average, strategists are expecting the S & P 500 to end the year at 4,943 , according to a CNBC survey. On a median basis, the target goes up to 5,100. Kostin's prediction also comes toward the tail end of a strong earnings season. About 80% of S & P 500 companies have reported earnings, with 76% of those names beating earnings expectations, FactSet data shows. The S & P 500 has performed well to start the year despite broader economic concerns. The benchmark is already higher by more than 4% and has notched record highs. It recently topped 5,000.