Goldman Sachs Predicts Rosy 2024 Economic Outlook, Yet A Challenging Q1 Earnings Season For S&P 500 Stocks

As investors remain vigilant about the recent inflationary pressures and their implications for Federal Reserve policy, Goldman Sachs offered a soothing perspective on the future of the U.S. economy.

Economist David Mericle, spearheading this optimistic forecast, predicts a robust economic upturn in 2024, with no significant threat from inflation.

A Rosy View From Goldman Sachs Economist: “We are projecting much stronger GDP growth this year than the consensus, coupled with a significant decline in core PCE inflation,” Mericle explained, setting the stage for potential three Federal Reserve rate cuts this year beginning as early as June.

Goldman Sachs anticipates a GDP growth rate of 2.5% for the full-year 2024, starkly surpassing the consensus estimate of 1.4%.

According to Mericle, “The supply-side potential of the economy is likely to continue growing somewhat faster than usual this year, thanks to elevated immigration boosting labor force growth.” This demographic factor should prevent any worsening of the supply-demand balance, a critical aspect for maintaining economic stability.

Even the possibility of a tightening labor market is not expected to dramatically influence inflation rates, Mericle explained.

Goldman Sachs identifies two major disinflationary forces for 2024. Mericle anticipates a strong decline in shelter inflation, expected to decrease by more than two percentage points from December 2023 to December 2024, which could reduce core PCE inflation by about 35 basis points.

Moreover, the resolution of supply chain disruptions and the rebuilding of inventories, along with heightened competition, are expected to reverse shortage effects.

A Cautious Stance On Stock Market Expectations: While the macroeconomic forecast appears favorable, Goldman Sachs analysts David J. Kostin and Ben Snider provide a more tempered view on the micro level, particularly concerning the upcoming S&P 500 earnings season.

“The 10 largest stocks will post sales and EPS growth of +15% and +32%, respectively, vs. +2% and -4% for the remaining 490 index constituents,” analysts said in a note.

Experts warned that the extremely elevated stock concentration, reminiscent of the Tech Bubble era, could potentially spark volatility and risks ahead — especially if earnings growth expectations are not met.

Goldman Sachs’ 12-month outlook for the S&P 500 is relatively cautious, projecting the index to close 2024 at 5,200 points, mirroring current market levels.

The SPDR S&P 500 ETF Trust SPY has risen 10% year to date, and over 26% since October’s lows.

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