Goldman Sachs analysts raised the possibility that their 6000-point price target for the S&P 500 might be “too low,” indicating a potentially stronger rally for U.S. equities as 2024 progresses. This insight, shared in a client note on Wednesday, suggests even more bullish expectations despite current market fluctuations.
The bank predicts a robust rally beginning on October 28, although they caution that the short-term outlook remains uncertain, with elevated volatility expected over the next few weeks. Goldman warned that the market could overreact to daily news and headlines, making it vulnerable to sudden swings.
Goldman Sachs pointed out a significant decline in S&P 500 index gamma a measure of how sensitive options prices are to movements in the underlying index indicating increased market flexibility. This could lead to short-term downside risks as the market reacts more strongly to external factors.
Despite these immediate challenges, the firm maintains a positive stance on the year-end outlook. The analysts highlighted strong systematic exposure, with institutional investors and hedge funds maintaining significant investments in the equity markets.
A temporary drag, however, comes from the blackout window on corporate buybacks, which remains in effect until October 25. This period restricts companies from repurchasing their own shares, which usually provides substantial support to the market.
“U.S. corporates are in a blackout window until October 25, and the largest buyer of U.S. equities in 2024 may have up to 35% less purchasing capacity during this period,” the note explains.
Goldman expects the buyback activity to rebound strongly in November and December, potentially driving the S&P 500 to new highs.
Additionally, the bank sees rising interest in Chinese equities, noting that investor demand is increasing and asserting that “this time is different,” with daily investment flows indicating stronger appetite compared to past trends.
Overall, while short-term volatility may pose risks, Goldman Sachs believes that the longer-term outlook remains promising, especially as buybacks and international demand pick up in the final quarter.
