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S&P 500 Hits Peak, Expect Stagnation for 2024, Says Goldman Strategist

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Goldman Sachs’ chief US equity strategist, David Kostin, has predicted that the stock market’s rally for 2024 has likely peaked, with the S&P 500 already exceeding the firm’s year-end forecast. Speaking with Bloomberg TV, Kostin expressed skepticism about further gains, citing the absence of economic, valuation, or earnings-based justifications for additional upside.

In his analysis, Kostin highlighted that the S&P 500 surpassed Goldman’s year-end target of 5,200 earlier in May. “This suggests a flat return from now until the end of the year,” Kostin noted, though he acknowledged the potential for forecast adjustments should market conditions evolve.

Currently, Goldman Sachs anticipates real GDP growth to be just under 3% and earnings growth around 8% for the year. Despite these figures, Kostin pointed out that market valuations remain elevated, limiting the potential for further stock price increases. “Valuations are at nearly 21 times earnings on an index level. The likelihood of multiple expansion, while possible, is less probable,” he stated. “The chance of earnings significantly exceeding our expectations seems low.”

Kostin did not entirely dismiss the possibility of a more bullish market scenario. He suggested that a significant reduction in interest rates by the Federal Reserve, beyond current expectations, could fuel additional market gains. However, Goldman Sachs’ base case still predicts only two rate cuts for the year, aligning with broader market projections, which were largely unchanged following a cooler-than-expected consumer price index report.

“Base case is that the market will trade at around this level of multiple or even lower as we approach the year’s end,” Kostin reiterated.

Contrastingly, some market analysts hold a more optimistic view. UBS, for instance, shares a base projection of 5,200 for the S&P 500 but has suggested that the index could reach 5,500 if certain conditions are met. UBS’s optimism is predicated on continued economic disinflation and sustained momentum in artificial intelligence-related spending.

While opinions on market performance diverge, Kostin’s cautious stance underscores a broader sentiment of tempered expectations amidst high valuations and modest economic growth projections. Investors will need to navigate these mixed signals, balancing hopes of an economic boost with the reality of current market dynamics.