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Goldman Sachs Believes S&P 500 Could Hit 6,000 by Year-End

AInvestTuesday, Oct 8, 2024 4:14 am ET
1min read

Goldman Sachs strategists have raised their year-end target for the S&P 500 for the third time this year, as they expect corporate profits to expand further and the macroeconomic outlook to remain stable through 2025.

In a report released last week, Goldman Sachs' Chief Equity Strategist David Kostin said he now expects the S&P 500 to close at 6,000 points by the end of this year, which is the second-highest target given by Wall Street strategists.

As of Monday's close, the S&P 500 fell 0.96% to 5,695.94 points, as traders reduced bets on interest rate cuts by the Federal Reserve.

Kostin's target implies a potential return of about 5% for the S&P 500 with less than three months left in the year.

At the end of last year, Kostin and his team set the year-end target for the S&P 500 in 2024 at 4,700 points. In February of this year, the team raised the target to 5,200 points, and again in June to 5,600 points.

Kostin also raised the bank's 12-month target for the S&P 500 from 6,000 points to 6,300 points.

Corporate Profits Expected to Expand Further

"The primary driver of the upward revision to our 2025 EPS estimate is greater margin expansion. We expect sales will grow by 5%, roughly in line with nominal GDP growth. However, we now expect 78 bp of net margin expansion in 2025, compared with 24 bp previously."

Kostin said his assumptions are based on a relatively stable macroeconomic outlook, with average real GDP growth in the U.S. of 2.3% in 2025 and 2.0% in 2026.

On the micro level, Kostin highlighted three reasons why he expects corporate profits to expand further in the coming year.

Firstly, Kostin said that special charges and write-downs at some S&P 500 constituent companies, which have weighed on corporate profits in 2024, should ease in 2025.

Secondly, Kostin believes that the recovery of the semiconductor cycle should boost tech companies' EPS in 2025.

"Shipments of integrated circuits excluding memory chips, a predictor of Semis margins, are roughly 10% below their historical trend. Reversion to trend should lead to margin expansion through 2026," Kostin explained.

Lastly, large tech companies should continue to achieve robust profit growth, partly thanks to the trend towards artificial intelligence.

"The recent Goldman Sachs Communacopia & Technology Conference indicated that demand for artificial intelligence remains strong, which should benefit these stocks," Kostin said.

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