Investment bank Goldman Sachs is bullish on the U.S. economy and stocks.
In his 2024 outlook released today, Goldman Sachs Chief U.S. Equity Strategist David Kostin said that the U.S. is likely to dodge a recession in the year ahead. Kostin also believes that the stock market will climb higher over the next 12 months.
Further Gains Ahead
Kostin sees the benchmark S&P 500 index rising throughout 2024 and ending next year at 4,700 points, which would be a gain of 5% from today’s levels. That would represent a slowdown from this year, where the S&P 500 has, so far, gained over 17% due largely to a strong rally in a select number of mega-cap technology stocks, most of which are focused on artificial intelligence (AI).
Goldman’s outlook for the market next year is predicated on the U.S. economy achieving a “soft landing” and skirting a recession. Kostin forecasts gross domestic product (GDP) growth of 2.1% in 2024, which is “higher than the consensus view on Wall Street” as well as higher than the 1.5% estimate from the Federal Reserve. Goldman also expects stocks in the S&P 500 to “continue to trade at a price-to-earnings ratio of about 19 times expected earnings over the next twelve months.”
Election Year and Rate Cuts
Goldman Sachs’ 2024 outlook is complicated somewhat by the fact that there is a presidential election next year. A 5% rise in the stock market is below the market’s average gain of 8% during an election year. However, Kostin notes that there is a lot of uncertainty about the upcoming presidential election, which could weigh on equities.
Additionally, Kostin is less bullish about an impending interest rate cut than many other Wall Street analysts. With no recession on the horizon, Kostin doesn’t believe the Fed will start cutting interest rates until late in 2024. That goes against futures traders, who are betting there’s a 65% chance that the Fed will start cutting rates by May of next year. Kostin acknowledges this difference in his outlook:
“We expect the Fed has finished its hiking cycle and Treasury yields have peaked. However, solid economic growth means the Fed will remain on hold until 4Q 2024, compared with market pricing of cuts beginning in 2Q.”
As a result, Goldman is anticipating that the stock market won’t really take off until the end of 2024 and into 2025. In terms of opportunities in the market, Goldman recommends that investors look for bargains in beaten-down cyclicals and small-cap stocks.
What’s Next?
Goldman Sachs is one of several investment banks and other Wall Street firms that are coming out with year-ahead forecasts. Rival Morgan Stanley just came out with its 2024 outlook that sees the S&P 500 finishing next year at 4,500 and claims that stocks will benefit from a rebound in corporate earnings.
While these types of forecasts for the economy and markets can provide an indication of where sentiment lies, they should be taken with a grain of salt. After all, Kostin admits that Goldman Sachs’ forecast for this year was wrong. The strategist had predicted that the S&P 500 would conclude this year at 4,000, which is 11% lower than where the index is currently at.
On the date of publication, Joel Baglole did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
