It’s a four-day week for markets, even if both the Fed’s favorite inflation gauge and comments from Fed Chair Jerome Powell are coming on that Friday break.
The S&P 500 closed out last week with its biggest weekly gain since December, and a third session above the 5,200 level, which means several year-end targets for Wall Street banks have been taken out — nine out of 15 tracked by MarketWatch.
While strategists were largely wary headed into 2024 after a bullish 2023, they seem to be getting braver on the whole.
In our call of the day, a Goldman Sachs team led by its chief U.S. equity strategist, David Kostin, makes the case for the S&P 500 to hit 6,000 by the end of 2024, thanks to a relentless rise in big technology companies. The bank has twice lifted its year-end index call — its baseline forecast is 5,200.
And while other banks have been busying adjusting targets, Goldman isn’t alone with its 6K call.
Barclays head of U.S. equity strategy, Venu Krishna, last month laid out a bull case for 6,050 hinging on tech earnings continuing to exceed forecasts. Other finance minds on X claim to have been there much earlier, while last year, Yardeni Research’s Ed Yardeni made a call for 6,000 by 2025 that turned heads.
Making the 6,000 case, Kostin and co. say the current growth stock rally is different from the 2021 and tech bubble episodes “because investors today focus on profitability.” And while there are plenty of worries about over-exuberant artificial intelligence optimism, they say Big Tech valuations remain far from “bubble” territory:
But Goldman suggests investors pay attention to other potential scenarios. They also lay out a “catch-up” scenario that takes the S&P 500 to 5,800, as the rest of the market catches up to the megacap tech giants. They say that would require a “shift in the interest rate outlook without a deterioration in the economy.” Further confidence in disinflation would be needed as a chunk of the market is still weighed by higher-for-longer rate worries.
They also flag a potential “catch-down” setup, taking the S&P 500 down to 4,500 by year-end. This would happen if the big tech companies fail to meet elevated growth expectations. “Crowding risk among the largest stocks and stretched investor positioning could exacerbate any ‘catch-down’ scenario,” they said.
“Each megacap tech stock, except TSLA, sits atop our list of hedge fund favorite long positions,” said Kostin and co., who add that downside would be limited because the Fed has plenty of room to cut in case of a negative growth shock. For investors fretting a near-term pullback, they suggest looking at defensive stocks.
Speaking of big tech: The EU has opened probes into Apple, Google and Meta over compliance with its new Digital Markets Act.