Goldman says S&P 500 could hit 6000 if mega-cap strength persists

investing.com:

The S&P 500 has surged so far in 2024, and after reaching Goldman Sachs' year-end target of 5200 last week, the firm said the index could continue to rally as mega-cap stocks continue to demonstrate their strength.

The S&P 500 has demonstrated strength so far this year, with the tech sector leading the way. Despite concerns over sticky inflation and interest rates potentially remaining high, the index has surged 10% in the year-to-date, rising to an all-time high.

This rally was predominantly fueled by the stellar performance of tech stocks, particularly those benefiting from artificial intelligence (AI) demand.

The tech sector's robust performance has been a driving force behind the S&P 500's upward trajectory. This sector's ability to generate returns based on the potential for future profits from new technologies has reinforced the perspective that tech stocks are the way forward for many investors.

Of course, within tech, AI has been one of the primary contributors to the rally, with AI «picks and shovels» companies such as Nvidia (NASDAQ:NVDA) making tremendous gains. As a result, the market's AI-driven rally has been a significant factor in the S&P 500's recent success.

In a recent note to clients, analysts at investment bank Goldman Sachs said that under their baseline forecast, EPS will rise by 8% in 2024 and 6% in 2025 «while the aggregate index forward P/E multiple contracts by 8% to 19.5x (83rd percentile) at year-end from its current level of 21.1x (89th %-ile).»

In the note, the firm explored four scenarios: "(1) in a 'catch up,' the S&P 500 would end the year at 5800 (+11% from today), (2) in a 'catch-down,' the S&P 500 would fall to 4500 (-14%), (3) continued mega-cap exceptionalism would lift the index to