Knowing the future is impossible, but these S&P 500 predictions could give investors a clue
Six months into 2024, Wall Street is also putting its numbers in line with the S&P 500 targets. Leading bank Citi Group went on and raised its forecast to 5,600, following two other strategists Goldman Sachs and Evercore.
Led by Scott Chronert, Citi Group (NYSE:C) notes these are unusual times for the market and its optimism is not solely based on the economy. The forecast also extends until 2025.
Last year, the company projected a bullish scenario of 5,700 for 2024, anticipating favorable earnings and valuation gains from lower interest rates. However, traditional methods now face challenges due to the dominant impact of mega-cap growth stocks, according to Chronert and his team.
The strategists cautioned investors about growing risks, including a potential 5% to 10% market downturn in the second half of the year, which they recommended seizing opportunistically. Risks cited included high expectations for free cash flow growth, bond-centric valuations, macroeconomic challenges and U.S. election uncertainty.
Looking ahead to 2025, they anticipated an 8% increase in S&P 500 earnings but noted current valuations likely already incorporate optimistic growth outlooks and lower rate expectations, with targets set at 5,700 mid-year and 5,800 by year-end.
Citi Group
Citi analysts increased their S&P 500 year-end 2024 target to 5600, projecting 5700 by mid-2025 and 5800 by year-end. They raised the full-year earnings estimate to $250 and initiated a $270 estimate for 2025, citing influences from Nvidia (NASDAQ:NVDA), other growth stocks, and the rest of the index.
Citi predicted valuations would remain stable through year-end but might compress in 2025, highlighting the significant impact of mega-cap growth stocks on the index. The S&P 500’s +14.6% year-to-date return was driven by Nvidia (4.1%), other major growth stocks (5.1%) and the remaining 493 stocks (5.4%). Although there are gains from this focus, Citi also highlighted there are 122 stocks that outperformed the index. This shows a 60% positive return for 2024.
Moreover, the company sees an 8.5% earnings increase in 2025, with the analysts’ $250 estimate for this year. However, its current 14% EPS growth forecast is too optimistic. Citi Group offered a bull case where the S&P 500 would reach 6400 by next year, and the bear case is when it drops to 4700, considering there are compressions and earnings declines.
Goldman Sachs
Global investment bank Goldman Sachs (NYSE:GS), like Citi, also raised its S&P 500 price target to 5600. The increase is said to be caused by strong earnings growth from five of the mega-cap tech stocks namely Nvidia, Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG, NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META). All five represent 25% of the S&P 500’s market cap.
Goldman Sachs also said the rally was due to upward revisions of price targets for these tech companies and increased investor optimism for AI. The new price target now sees a 3.1% upside from the former index close. Moreover, Goldman expects consistent real yields and strong earnings growth.
Moreover, Goldman analysts highlighted how the U.S. elections can be a risk for the S&P 500. They observed the index volatility rises before the election before it cools down and rebounds to higher levels. The upcoming elections will be in November.
Evercore ISI
Evercore ISI (NYSE:EVR) analysts also raised their year-end S&P 500 target to 6,000, highlighting AI’s transformative potential. Their note, “The AI Revolution is in the Early Innings,” previously set the target at 4,750. They cited post-pandemic effects, stimulus, low consumer debt and AI’s promise as creating a “Goldilocks” economic environment of slowing inflation, potential Fed rate cuts and steady growth.
Evercore ISI highlighted Gen AI’s rising productivity across sectors as a key factor in raising their S&P 500 target. They projected EPS to reach $238 in 2024 and $251 in 2025, with 8% and 5% growth, respectively, justifying a high PE ratio of 25. The analysts also noted the potential for further gains, envisioning a bull-case scenario of 6,500, driven by AI enthusiasm and ample liquidity.
Contrarily, Evercore ISI’s bear case involved a recession or volatile market correction, potentially lowering the index to their previous target of 4,750. The experts upgraded the Technology sector to Outperform, citing its alignment with AI trends and sustained investor optimism.
On the date of publication, Chris MacDonald 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.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
