Goldman Sachs has presented four stock market predictions for how the year could end. Wall Street is fast approaching the midpoint of 2024, with investors finding the stock’s performance so far surprising. The S&P 500 is up 14% already this year, passing 5,400 for the first time, already beating many strategists’ year-end forecasts. However, this progress in less than six months has worried some investors who are unsure how stocks will fare for the rest of the year, especially since the bull market has been driven by only a handful of technology stocks with mega-cap. Many investors predict further growth. Others expect a turn for the worse. In its revised forecast, Goldman Sachs predicts that the S & P 500 has yet to climb. On Friday, David J. Kostin, the firm’s chief U.S. equity strategist, raised his forecast to 5,600 for the broad market index. This is up from 5,200 and represents around 3% growth from current levels. .SPX YTD S&P 500 mountain Kostin wrote that smaller-than-expected downward revisions to consensus earnings estimates and a larger price-to-earnings premium for mega-cap tech stocks support its upgrade. However, the strategist laid out four alternative scenarios that he expects to potentially play out in the remaining six months of the year. These include: “catch-up”, “catch-down”, “continued megacap existence” and “fear of recession”. Here are the scenarios: Catch-up A “catch-up” scenario, in which market growth is extended by large-cap technology to catch up with lagging stocks, would mean further growth for the broad market index. In fact, the strategist predicts that the S&P 500 could end the year at 5,900, roughly 9% above where it recently traded, in this scenario. As it is, Goldman said just five stocks — Alphabet, Amazon, Meta, Microsoft and Nvidia — are responsible for 60% of the S&P 500’s 14% advance this year. Meanwhile, the equal weighted standard is higher at just over 3%. Catch-down Investors will want to brace for a “catch-down” scenario, which suggests a correction is in store if earnings estimates for megacap tech stocks prove too buoyant. It means a 13% drop for the S&P 500, returning to 4,700. “The main risk for today’s market leaders is if current analyst estimates turn out to be too optimistic,” Kostin wrote. “Strong upward earnings revisions create a higher bar for these stocks, especially as investors begin to focus more on seeing the returns on AI investments.” Megacap exception If AI stocks continue to outperform, defying expectations, the stock could see a big megacap tech rally between now and the end of the year. In this scenario, investors can expect the S&P 500 to end the year at 6,300, a gain of about 16%. Recession fears On the other hand, an economic outlook that takes a turn for the worse would mean a sharp decline in stocks going forward, of about 12% in the S & P 500, Goldman noted. “US economic data surprises turned negative in late April and are trending lower,” Kostin wrote. “Although our economists still forecast above-consensus economic growth, further weak growth data could reignite fears of a slowdown and push the S&P 500 P/E multiple to 18x.” However, if the economy were to weaken, Kostin said the Federal Reserve, “would have ample room to cut interest rates if the economic data deteriorates significantly,” limiting any potential downside.
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