Goldman claims that if mega-cap strength continues, the S&P 500 may reach 6000

The S&P 500 has risen sharply so far in 2024, and last week, it surpassed Goldman Sachs's year-end objective of 5200. The investment firm stated that the index may rise further as long as mega-cap firms show resilience.

This year, the S&P 500 has shown strength thus far, with the IT industry leading the way. Despite worries about sticky inflation and perhaps higher interest rates going forward, the index has increased by 10% so far this year, reaching a record high.

The impressive success of tech equities, especially those profiting from the demand for artificial intelligence (AI), was the main driver of this rise.

The S&P 500's upward trajectory has been fueled by the tech sector's strong performance. Tech stocks represent the way forward for many investors, as demonstrated by this sector's capacity to create returns based on the possibility of future revenues from new technology.

AI has played a major role in the IT sector's upswing, with firms like Nvidia reaping enormous profits. Consequently, the AI-driven rise in the market has played a major role in the recent performance of the S&P 500.

According to Goldman Sachs' baseline forecast, EPS will increase by 8% in 2024 and 6% in 2025.

The company looked at four possible outcomes:

1. In a 'catch up,' the S&P 500 would end the year at 5800 (+11% from today)
2. In a 'catch-down,' the S&P 500 would fall to 4500 (-14%)
3. Continued mega-cap exceptionalism would lift the index to 6000 (+15%)
4. 4 recession fears would push the index down to 4500 (-14%)

GS has pointed out in the past that because investors now prioritise profitability, the growth stock rise of 2021 is dissimilar from the Tech Bubble and 2021 experiences.

The company added that positive conclusions from NVDA's GTC indicated conditions of high demand and limited supply.

"Assuming a 16x NTM P/E for the equal-weight index and a 45% P/E premium for the market-cap index, the aggregate S&P 500 would trade at a forward P/E of 23x, 10% above today," Goldman Sachs stated.

(Sources: investing.com, reuters.com)