Just one month after setting a 2024 target for the S&P 500, Goldman Sachs Group Inc. strategists increased their forecast as the year-end rally shows no signs of abating.

The Federal Reserve’s dovish pivot last week, along with lower consumer prices, is an outcome that will allow real yields to fall while supporting stock valuations, a team led by David Kostin wrote in a note. “Equities were already pricing positive economic activity but now reflect an even more robust outlook,” they said.

Kostin sees the S&P 500 at 5,100 points by the end of next year, joining Wall Street peers like those at Bank of America Corp. and Oppenheimer Asset Management in expecting a fresh high in 2024. The Goldman strategist raised his forecast by almost 9% from the 4,700 level he predicted in mid-November.

There is also a risk that his earnings forecast of 5% year-over-year growth in 2024 may prove too pessimistic, thanks to looser financial conditions that should boost economic activity and company profits, Kostin said. The strategist previously said his team was right in predicting that the S&P 500 would show no profit growth in 2023, but was wrong to say the index wouldn’t climb this year.

US equities have soared this year, amid expectations of a dovish policy shift and as artificial intelligence optimism lifted technology stocks. The S&P 500 is less than 2% away from its all-time peak, while the Nasdaq 100 hit its first record in two years after the Fed signaled that its aggressive rate hikes to contain inflation are likely over and cuts are on the table for 2024.

But even with the rally, Kostin noted that $1.4 trillion was poured into money-market funds this year as interest rates climbed, far higher than the $95 billion that flowed into US equities. “As rates begin to fall, investors may rotate some of their cash holdings toward stocks,” he said.

Even Morgan Stanley’s Michael Wilson — among the most prominent bearish voices on Wall Street this year — said the dovish pivot is a sign the Fed wants to make sure it shifts policy in time to achieve a soft landing. “This is a bullish outcome for stocks,” as the chances of avoiding an economic downturn have increased if the central bank prioritizes sustaining growth over reducing inflation to its target, he said.

Wilson said that while there is a risk of the dovish pivot allowing inflation to eventually re-accelerate, it’s still “welcome news to equity investors, especially given the bond market’s reaction to the dovish guidance.” Markets seem to be of the view the Fed is not making a policy mistake, he wrote. His 2024 target remains 4,500, implying a near 5% drop from the last close.

This article was provided by Bloomberg News.