The high water mark for Wall Street's S&P 500 (^GSPC) forecast has risen again.
Benchmark indexes have hit record highs as 2024 begins. Stock prices have already begun to soar. Enter S&P Less than two months into the year, it surpassed the average year-end target of Wall Street strategists.And now, two strategists They are raising their predictions for how high stocks will rise in 2024.
Last week, Goldman Sachs raised its year-end target to 5,200 shares from 5,100. On Tuesday, UBS also raised its target. UBS Investment Bank's equity strategy team, led by Jonathan Golub, now expects the S&P 500 to close this year at 5,400, up from its previous forecast of 5,100. This reflects an increase of about 8% from Tuesday's opening price.
“Despite our bullish outlook, it appears we were not bullish enough,” Golub wrote.
Goldman Sachs and UBS both expressed brighter than previously expected forecasts for corporate earnings this year when explaining why they expect stock prices to rise further.
According to FactSet, fourth-quarter earnings for S&P 500 companies were expected to rise 3.2%, up from a forecast of 1.9% a month ago, according to their new forecast. The analyst predicts that for the full year 2024, the S&P 500 index will grow by 10.9%.
David Kostin, chief U.S. equity strategist at Goldman Sachs, said in a Feb. 16 research note boosting the bank's S&P 500 forecast that earnings growth is the “key driver” for stocks to continue rising in 2024. “It will be a driving force,” he said.
Kostin said the brighter earnings outlook is due to “improved prospects for U.S. economic growth and large-cap returns.” Specifically, Goldman's demand for profit growth stems from being a super-giant company.
Earnings predictions for the “Magnificent Seven” tech stocks over the past three months – Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), Nvidia (NVDA) rose 7%. Meanwhile, margin forecasts were revised upward by 86 basis points. This is in contrast to the trends seen in the other 493 stocks, where earnings were revised down by 3% and margins were revised down by 30 basis points.
As a result, Goldman believes the technology (XLK) and communication services (XLC) sectors, which include five of the seven Magnificent Seven stocks, will be the drivers of earnings growth in 2024.
“While demand drivers such as growth in AI and consumer strength will support revenue growth in these areas, we expect margins to continue to expand as these companies focus on operational efficiency,” Kostin said. “
“The rest of the S&P 500 should also see improved returns in 2024, but to a much smaller extent,” he added.
Of course, there are still many risks to a rising stock market. What has weighed on stock prices in recent days is the prospect of continued inflation. Stocks sold off on February 13 after a better-than-expected inflation report raised concerns that the Federal Reserve would not cut interest rates as quickly as expected.
But U.B.S. Golub points out that persistent inflation may not be all bad for businesses.
“Revenues and profits are measured in nominal dollars. In other words, higher inflation tends to be positive for stock prices,” Golub wrote. “The market sold off as it was more robust, but [Consumer Price Index] and [Producer Price Index] As reported last week, our research shows that these demand-driven measures are constructive for future returns. ”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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