In a surprising turn of events, Goldman Sachs is urging investors to take inspiration from Taylor Swift's famous lyrics and "stay invested" in their 2024 investment outlook. Chief U.S. Equity Strategist David Kostin released the report on Wednesday, projecting a positive trajectory for the S&P 500 index, with a year-end target of 4,700, indicating a potential 5% gain from the current market position.
The report emphasizes the expectation of a "soft landing" for the U.S. economy, avoiding a recession in 2024. Goldman predicts a GDP growth of 2.1%, surpassing both the consensus view on Wall Street and the Federal Reserve's projection of 1.5%. The investment bank anticipates the S&P 500 to maintain a price-to-earnings ratio of approximately 19 times expected earnings over the next twelve months, aligning with historical fair value.
Goldman's forecast hinges on the belief that the Federal Reserve has completed its hiking cycle, with Treasury yields peaking. The report suggests that interest rates are unlikely to be cut until late 2024 unless a recession materializes.
While megacap tech stocks are expected to continue their outperformance in 2024, Goldman advises investors interested in diversification to consider beaten-down cyclical stocks. However, the report acknowledges that market movements are rarely linear, cautioning investors to brace for potential challenges in the coming year.
The "known knowns" outlined in the report include potential economic, financial, corporate, political, and geopolitical risks. Despite Goldman's optimistic view, concerns about a recession persist, with the bank estimating a 15% likelihood, contrasting sharply with a Bloomberg consensus of 55%.
Commercial real estate issues are highlighted as a potential financial challenge, particularly for regional banks with mortgages where collateral values fall below the loan amounts. Additionally, the report mentions looming antitrust rulings, political uncertainties related to the U.S. presidential election, and geopolitical tensions such as the Israel-Hamas War, Russia-Ukraine War, and the U.S.-China Trade War.
Goldman's expectations for interest rates stand out amidst a brewing disagreement among Wall Street economists. While some anticipate sharp cuts in 2024, Goldman predicts a slower pace of rate reductions.
Investors are advised to exercise patience and resilience during potential market downturns, as the bulk of gains may materialize later in the year. Despite the optimistic outlook, Goldman acknowledges the unpredictability of markets, reminding readers of their misjudgment last year when they anticipated the S&P 500 to finish at 4,000 – a prediction that may still come true with a 9% market correction before year-end. Corporate earnings, however, have aligned with Goldman's forecast, currently tracking a 1% growth.
As investors navigate the uncertainties of 2024, Goldman Sachs suggests a cautious approach, echoing Taylor Swift's sentiment that sometimes "all you had to do was stay."