Goldman Sachs sees S&P 500 at 6,000 in 12 months, gives basket to play lower rates

Goldman Sachs believes solid economic growth in the U.S. should continue to support the stock market over the next year, and has provided a basket of “long-duration” stocks that should see outsized moves as a result of lower interest rates. The Wall Street investment bank sees the S & P 500 rising about 6% to 6,000 in the next 12 months from Friday’s close of 5,626.02. For the rest of 2024, Goldman thinks that economic and earnings gains have already been priced in, so it has maintained its year-end target at 5,600. “Resilient economic growth should lead to modestly higher bond yields while continued earnings growth drives modestly higher equity prices,” David Kostin, Goldman’s head of U.S. equity, said in a note to clients on Friday. The Federal Reserve is widely expected to make its first interest rate cut this week since the Covid pandemic in 2020, and the since monetary policy began to be tightened in March 2022 to fight rising inflation. Wall Street is counting on lower corporate and consumer borrowing costs to boost earnings growth and stock prices. “The trajectory of growth is a more important driver for stocks than the speed of rate cuts,” Kostin said. “The offsetting valuation impact of higher bond yields and better growth expectations imply limited scope for P/E expansion. With multiples flat, EPS growth will lead the S & P 500 modestly higher.” Goldman believes stocks with a “long duration” could outperform in a falling interest rate environment. Equity duration is a measure of how sensitive a stock’s cash flows are to changes in the discount rate. The firm estimates the weighted average distribution of cash flows for each Russell 1000 stock, excluding the those in the financial and real estate sectors. Stocks with greater implied equity durations have expected cash flows concentrated further out into the future, Goldman said. Electric vehicle firms Rivian Automotive and Lucid Group are in the long-duration basket. Consumer names Freshpet , Costco Wholesale and e.l.f. Beauty are also on Goldman’s recommended list.