The Federal Reserve’s pivot last week to an easier monetary policy made many investors more bullish toward stocks.
You can count Goldman Sachs among them.
It has raised its year-end 2024 target for the S&P to 5,100 from 4,700. The new forecast represents an 8% increase from 4,740 on Dec. 18. Goldman has a three-month target of 4,800 and a six-month target of 4,900.
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“This outcome aligns with the scenario where lower inflation and dovish Fed policy allow real yields to fall,” David Kostin, Goldman’s chief U.S. equity strategist, wrote in a report.
Year-on-year consumer-price inflation dipped to 3.1% in November from 3.2% in October and 3.7% in September. That “signaled inflation is nearing the Fed’s target” of 2%, Kostin said. “In fact, by some measures the trend is already at or near 2%.”
Goldman’s Fed forecast sharper than the Fed's
As for the Fed, its officials’ median projection last week called for about 75 basis points of interest-rate reductions next year. Goldman economists went further, predicting 1.25 percentage points of cuts in 2024.
Meanwhile, last week’s news that retail sales rose a stronger-than-expected 0.3% in November provided “further evidence of economic resilience,” Kostin said.
“And lower-than-expected jobless claims affirmed that the labor market remains healthy.” Initial unemployment claims totaled 202,000 last week, down 19,000 from a week earlier.
“Equities were already pricing positive economic activity but now reflect an even more robust outlook,” Kostin said. “Financial conditions have loosened substantially since October and should boost economic activity and company earnings.”
Goldman’s new view on the Fed also led it to anticipate a rally in bonds during the first half of next year.
Its interest-rate strategists now expect the 10-year Treasury yield will fall to 3.75% in the first of next year from its Dec. 18 level of 3.95%. The call is for a rise to 4% by the end of 2024.
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