The rolling 30-day correlation of the changes in the S&P 500 and the 10-year Treasury yield has shifted back into positive numbers… essentially meaning that increased yields are not as harmful for stocks anymore (this shift is now more linked to growth expectations rather than inflation dynamics)
— Liz Ann Sonders (@LizAnnSonders) October 8, 2024
Goldman Sachs has updated its predictions for the S&P 500 index, forecasting a 10% rise to 6,300 within the upcoming year. Analysts at the bank, under David Kostin’s leadership, anticipate the index to reach 6,000 by the year’s end and to climb to 6,300 thereafter. This revision marks an upgrade from prior forecasts of 5,600 for year-end and 6,000 for the following year.
Over the last year, the S&P 500 saw a growth of 34.4% (ending September).
Now, consider how many times you heard about how dire the situation was throughout this period? Yield curves, LEIs, manufacturing PMIs, credit crises, just seven stocks, poor quad trends, elections, conflicts, utilities leading, among others.
— Ryan Detrick, CMT (@RyanDetrick) October 7, 2024
The analysts project an improvement in profit margins, expecting them to rise to 12.3% in the next year and 12.6% by 2026, compared to an estimated 11.5% by year’s end. “The macro conditions are favorable for moderate margin growth, with prices charged exceeding the rise in input costs,” the analysts indicated. Goldman has adjusted its earnings per share forecast for the S&P 500 from $256 to $268, signaling an 11% annual growth.
The S&P 500 has increased by nearly 35% Year-on-Year in the last 12 months.
This marks one of the strongest rallies heading into Q4.
It’s important to note that October has only ended higher once in six instances when it was up 30% or more entering Q4, and Q4 averages lower returns as well.
— Ryan Detrick, CMT (@RyanDetrick) October 5, 2024
Goldman anticipates S&P 500 growth
The index is also likely to gain from the resolution of significant challenges impacting the healthcare sector this year, along with growth in the information technology sector, propelled by a semiconductor recovery. This optimistic outlook coincides with robust stock market performance, with the S&P 500 up 20% year-to-date, showcasing its strongest first nine months since 1997.
CTAs are predicted to sell off the S&P 500 in EVERY SINGLE scenario over the next week and month, with potential sales reaching $38 billion according to Goldman Sachs.
— Barchart (@Barchart) October 8, 2024
Investor enthusiasm is buoyed by optimistic forecasts related to AI’s capabilities and indications that the Federal Reserve may have effectively navigated the economic environment following a recent decline in unemployment rates. Nevertheless, not all analysts share this optimism. David Kelly from J.P. Morgan Asset Management urges caution against heavily investing in volatile, high-growth stocks.
He recommends that investors contemplate reallocating their portfolios towards value-driven assets or international stocks, as current market valuations seem increasingly skewed. “While I view this outlook positively for the equity market, I’m growing increasingly uneasy about the equity market consistently pricing in a soft landing,” Kelly remarked, advising that investors should “reduce risk” if they have already achieved substantial gains.
