Lofty US equity valuations suggest investors have already priced in a lot of stock market enthusiasm, but that doesn’t mean they should start selling, according to Goldman Sachs Group Inc.

The S&P 500 Index already is higher than Goldman’s year-end target of 5,200, but the fundamental backdrop for share prices remains “very good,” Ben Snider, senior strategist on Goldman’s US portfolio strategy team, said in an interview. He’s optimistic about stocks down the road because of strong earnings from US companies and confidence in the path of disinflation.

“We still think that the upside risks look greater than the downside risks at this point,” Snider said, emphasizing that he and chief US equity strategist David Kostin are bullish over the long term despite their call for little to no gains from here in 2024. “If you own stocks today, we’re not telling you you should be selling them.”

The stock market is at a critical juncture, with traders searching for the next catalyst. One could come as soon as Wednesday, when the government releases the latest consumer price index. Options markets show traders anticipating a move of nearly 1% in either direction on the day of the print.

The S&P 500 has recouped the bulk of its losses from last month’s rout thanks to upbeat earnings reports. But it has stalled around its March peak, with investors torn about whether the index can keep rallying after an almost 27% surge since its late October bottom as the Federal Reserve signals it’s likely to keep rates elevated for months to come.

Economic Strength
While inflation and interest rates are the subject of much of the market chatter, the “real story” of 2024 has been the vigor of the US economy and corporate earnings, Snider said.

“Even we’ve been surprised at the strength of the data,” he said, noting that Goldman Sachs economists already entered the year with an above-consensus forecast for gross domestic product.

That’s one of the reasons the bank lifted its S&P 500 earnings forecast and year-end price target twice since publishing the calls late last year. The firm first raised its projection for the 503-member equity benchmark to 5,100 from its original call of 4,700, and then bumped it up to 5,200. Goldman also upgraded its earnings-per-share forecast for the year to $241 and $256 in 2025, from $237 and $250 previously.

“One very clear upside risk is that we will have to raise our earnings forecasts further,” Snider said, pointing to the highest earnings beat rates versus analyst estimates in decades of the firm’s data (excluding the Covid reopening in 2020 and 2021.) “So it’s not hard to imagine in a few months we’re looking back and saying, ‘You know, even we were a little bit too cautious on earnings.’”

The S&P 500 is on track to post 7.1% earnings growth for the first quarter, topping analysts’ pre-season estimates of 3.8%.

Even if the S&P stays stagnant for the rest of the year, Snider sees abundant opportunities for investors in different corners of the market. For example, the expansion of artificial intelligence beyond a few semiconductor companies to data centers and technology hardware firms could be attractive to stock pickers. He also said mid-caps, which trade at low valuations compared to large-caps and relative to their own history, are a good “catch-up” opportunity.

This article was provided by Bloomberg News.