The S&P 500 Index will keep rallying next year and should come close to its record high hit in early 2022, say strategists at Goldman Sachs Group Inc., becoming the latest Wall Street bank to come out with a bullish call.
The team, led by David Kostin, joins others who have turned more positive about the outlook for equities, like Morgan Stanley’s Michael Wilson. Meanwhile, Bank of America Corp.’s Michael Hartnett has said investors have moved to overweight positions in stocks and bonds.
Kostin’s expectations are still moderate: he sees the US benchmark ending next year at 4,700 points, nearly 5% above its current level, but a slower advance than this year’s 17% rally so far.
David Kostin Photographer: Victor J. Blue/Bloomberg
A supportive mix of factors awaits US stocks, with the economy set to avoid a recession, earnings rising and valuations remaining steady, the Goldman team wrote in a note Wednesday. This means investors should resist the urge to sell in moments of uncertainty.
“At this time next year, portfolio managers will look back and realize the best investment strategy for 2024 was to follow Taylor Swift’s advice in the song from her 1989 album: ‘All You Had To Do Was Stay’ – invested,” Kostin said. The song “reflects our baseline forecast that despite intermittent volatility, fund managers will ultimately be rewarded for staying invested through the end of next year.”
Kostin expects returns to be concentrated in the second half of 2024, because investors will need to push back their current pricing of Federal Reserve cuts due to resilient growth, while the looming US election will suppress risk appetite. “Later in the year, the first Fed cut and resolution of election uncertainty will lift US equity prices.”
The S&P 500 is rallying this year as the economy withstands higher interest rates, with a further boost in store once easing inflation convinces the Fed to ends its hiking cycle. A second year of gains would mark a turnaround from 2022 when the index tumbled, interrupting a winning streak that ran from 2019 through 2021. Kostin’s target would still leave the benchmark shy of its record of about 4,796 reached last year.
“We remain constructive on US equities, but the current starting point will limit the potential appreciation for the index in 2024,” the strategist said. He added that his team was right about predicting that the S&P 500 would show no profit growth in 2023, but were wrong to say it wouldn’t appreciate this year.
Morgan Stanley’s Wilson — known for being a staunch bear on equities — has also taken a more positive view on stocks for next year, but expects the S&P 500 to end the 2024 at 4,500, less bullish than Kostin’s estimates and roughly where the index closed Tuesday. Over at BofA, Hartnett said their latest fund manager survey showed investors expecting a soft landing next year and are overweight stocks and bonds.
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