Goldman Sachs raises its S&P 500 year-end target

Goldman Sachs has raised its year-end target price for the S&P 500 index, citing higher fair value and robust earnings growth, especially from the mega-cap tech firms.

The S&P 500 is expected to close the year at 5600, up from the bank's initial goal of 5200, representing a 3% increase from Friday's closing price of 5431.60.

Since the beginning of the year, the S&P 500 index as a whole has gained 15%. Microsoft, Nvidia, Alphabet, Amazon, and Meta are the five stocks that have contributed 60% of the index's year-to-date performance.

In all, these stocks have increased by 45% and now account for 25% of the S&P 500 equity cap, according to a June 14 report from Goldman Sachs analysts.

Analysts increased their 2024 EPS projections for these five tech firms by 38% after the five businesses on the above list reported 1Q year/year EPS growth of 84% compared to 5% for the average S&P 500 company. The profit projections for the other 495 stocks in the index, meanwhile, have decreased by 5%.

According to Goldman, consensus estimates for 2024 indicate a 31 percentage point difference in EPS growth between these five firms and the median S&P 500 company; however, the analyst believes that this difference will close to 8 percentage points in 2025 and 4 percentage points in 2026.

The bank now projects a mere 2% downward revision to the current bottom-up consensus 2025 EPS projection through year-end, which is half the typical historical change.

GS stated that the election is still a major danger to the S&P 500 level and it occurs within their three-month and year-end prediction horizons.

In previous election years, there has been a spike in index volatility prior to the election and a 4% decrease in the S&P 500 index from late October to early November. However, after the election, volatility usually decreases and the index surpasses previous levels.

(Sources: investing.com, reuters.com)