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Goldman Sachs analysts have reiterated their year-end S&P 500 (SP500) goal of 5,200 factors, but additionally see a scenario wherein continued positive factors in megacap tech shares may enhance the benchmark index to six,000.
On Wednesday, the S&P (SP500) surged previous the historic mark for the primary time ever, with the positive factors largely pushed by the Federal Reserve reinforcing expectations of three rate of interest cuts this yr. The index continued to push greater and ultimately advanced 2.29% for the week to shut at 5,234.18 factors on Friday.
Having hit the 5,200 mark by late March, the index has blown previous many brokerages’ year-end estimates.
Goldman Sachs is sticking with its 5,200 expectation because it believes that the anticipated path of the federal funds fee and above-consensus financial development forecasts have been totally priced in by markets.
“Nevertheless, the trail of the S&P 500 (SP500) ahead a number of is unsure. Immediately, the ahead P/E for the combination index ranks within the 89th percentile since 1990 and the valuation of the equal-weight index ranks within the 93rd percentile. On condition that simply three months into the brand new yr the S&P 500 (SP500) index trades at our year-end goal, we discover 4 valuation eventualities which can be completely different from our baseline,” Goldman analysts led by David Kostin mentioned in a observe on Friday.
Of those eventualities, essentially the most bullish sees a ~15% rise within the S&P 500 (SP500) from at present’s ranges to finish the yr at 6,000 factors. This advance could be largely pushed by continued positive factors in megacap know-how shares, one of many key drivers of Wall Avenue’s present bull.
“We beforehand argued that the present development inventory rally is completely different from the 2021 and Tech Bubble experiences as a result of buyers at present give attention to profitability. As well as, though (synthetic intelligence) optimism seems excessive, long-term development expectations and valuations for the biggest TMT shares are nonetheless removed from ‘bubble’ territory,” Kostin and the analysts mentioned.
“The cap-weight S&P 500 index traded at a better than 100% valuation premium to the equal-weight index in the course of the Tech Bubble and at a 30% premium in 2021. Takeaways from NVDA’s GTC have been encouraging and level to situations of sturdy demand and constrained provide. Assuming a 16x NTM P/E for the equal-weight index and a forty five% P/E premium for the market-cap index, the combination S&P 500 would commerce at a ahead P/E of 23x, 10% above at present,” the Goldman analysts added.
The opposite three eventualities sees a “catch-up” scenario wherein the S&P 500 (SP500) would finish the yr at 5,800 factors (+11% from present ranges), a “catch-down” scenario wherein the index ends at 4,500 factors (-14%), and a 4,500 year-end degree amid heightened considerations concerning the financial outlook and value elevated recession danger.