Goldman Sachs has highlighted that the trajectory of economic growth is now a more significant factor for stock performance than the pace of Federal Reserve rate cuts. Despite recent equity rotations indicating a cautious economic outlook, the S&P 500 remains near its all-time high, partly due to expectations of Federal Reserve easing.
Goldman Sachs forecasts a 25 basis point cut by the Fed next week and anticipates a total of 200 basis points of easing by the first quarter of 2026. This is more conservative compared to market expectations of 260 basis points. Futures markets currently predict a 45% chance of a 50 basis point cut next week and a total of 115 basis points of easing in 2024, with an additional 140 basis points in 2025.
The firm notes a shift in market dynamics: whereas in the past, strong economic growth led to fears of inflation and additional Fed tightening (“good news was bad news”), the current environment has reversed to where positive economic news is seen as beneficial (“good news is good news”). Goldman Sachs anticipates that resilient economic growth will lead to higher bond yields and continued earnings growth, supporting higher equity prices. The firm has set a year-end 2024 S&P 500 target of 5600, with 6-month and 12-month targets of 5700 and 6000, respectively.
