The stock market’s impressive rally in 2024 has reached its peak, according to David Kostin, the chief U.S. equity strategist at Goldman Sachs. The S&P 500, having already surpassed Goldman’s year-end target of 5,200, is expected to trade flat for the remainder of the year.
Kostin’s analysis, shared in an interview with Bloomberg TV, suggests there are no compelling economic, valuation, or earnings arguments to support further upside. Money-flow models also indicate that additional gains will be limited. His projection leaves open the possibility of changes if significant variables shift, but the current outlook remains cautious.
Economic and Earnings Outlook
Goldman Sachs projects real GDP growth of just under 3% and earnings growth of approximately 8% for the year. Despite these positive growth metrics, the valuations of stocks are currently high, which reduces the likelihood of further stock price increases. Kostin noted, “They’re at an index level basis almost 21 times earnings. So the probability of a multiple expansion, while possible, is less probable. The idea of earnings being much greater than we’re assuming we think is pretty low.”
The Role of the Federal Reserve
Kostin acknowledged the potential for a bullish turnaround, albeit not as Goldman’s base case scenario. Such a turnaround could occur if the Federal Reserve cuts interest rates more significantly than currently anticipated. Goldman’s expectation is for two rate cuts this year, a view that aligns with market projections and was reinforced by the recent cooler-than-expected consumer price index.
However, Kostin reiterated that the base case remains for the market to trade at current multiples or potentially lower as the year progresses. “Base case is in fact that the market will trade at around this level of multiple or in fact, even lower multiple as we come towards the end of the year,” he said.
Contrasting Views from UBS
Not all experts share Goldman’s cautious outlook. UBS, which also set a 5,200 target for the S&P 500 as its base projection, has suggested a more optimistic scenario. UBS believes the S&P 500 could reach 5,500 if certain conditions are met. These include continued economic disinflation and sustained momentum in spending on artificial intelligence.
Key Takeaways
- Flat Market Projection: Goldman Sachs predicts that the S&P 500 will trade flat for the rest of 2024, having already surpassed its year-end target of 5,200.
- Economic Growth and Earnings: Real GDP growth is projected at just under 3%, with earnings growth around 8%. High current valuations make further stock gains less likely.
- Valuation Concerns: With stocks trading at nearly 21 times earnings, the chance of multiple expansion is slim, and significant earnings surprises are considered unlikely.
- Federal Reserve’s Impact: A more aggressive rate cut by the Federal Reserve could spark a bullish market turnaround, though Goldman’s base case is for only two cuts this year.
- Alternative Outlooks: UBS offers a more optimistic projection, suggesting the S&P 500 could hit 5,500 if economic conditions and AI spending trends remain favorable.
Conclusion
Goldman Sachs’ cautious outlook for the stock market in 2024 underscores the importance of managing expectations amidst high valuations and moderate economic growth. While the possibility of a market upturn remains if the Federal Reserve enacts more significant rate cuts, the base case remains a flat market. Investors should be prepared for limited gains and consider diversifying their portfolios to mitigate risks associated with a potentially stagnant market. The differing views from Goldman Sachs and UBS highlight the inherent uncertainties in market predictions, reminding investors of the importance of staying informed and adaptable.
