Societe Generale updates year-end S&P 500 forecast, sees upside of 5% 

Following the S&P 500 index's 19th record high of 2024, strategists at Société Générale have updated their year-end forecast for the index to 5,500, up from 4,750, suggesting a further increase of slightly over 5%, according to a report by MarketWatch citing the bank’s research. 

This revision positions Société Générale as having one of the most bullish projections among the major Wall Street banks, where the previous high-end forecast hovered around 5,200 at the close of 2023, despite several research firms setting even loftier targets. 

The “best returns may be behind us, but the outlook remains positive,” wrote Manish Kabra, the bank’s head of U.S. equity strategy, and Charles de Boissezon, the global head of equity strategy, in a note to clients.  

Both analysts say U.S. macro themes are continuing to improve, such as a “reshoring boom” that led the bank to turn bullish on industrial stocks in November 2022 — they said that the upcoming U.S. election in November could trigger another round of the same policy. 

Two other factors were the surge in the Nasdaq-100 index, driven by advancements in artificial intelligence (AI), and improved credit conditions, leading Societe Generale to upgrade its stance on U.S. financial stocks for the first time since December 2021. 

“Despite widespread market optimism, we view this as rational rather than excessive, as profit growth continues to increase and set new records for the S&P 500,” Kabra and de Boissezon wrote. 

S&P 500 index posts new record on Thursday 

On Thursday, the S&P 500 scored another record, advancing by 16.91 points, or 0.3%, and closing at 5,241.53 as the Federal Reserve appeared not to scale back its plans for interest rate cuts.  

The central bank kept its policy rate steady in a range of 5.25%-5.5% and made no significant changes to its policy statement. 

The analysts highlighted that in the first half of 2024, the S&P 500 is experiencing dual profit trends. On one hand, growth stocks within the Nasdaq-100 index have propelled a profit increase of 25% over the last year. On the other, when excluding these high performers, the rest of the stocks in the S&P 500 have witnessed a 7% decline in their profits. 

“Given our U.S. macro outlook, we front-load the EPS [earnings per share] growth that we had penciled in between 2024 (5%) and 2025 (15%) to 2024 (12%) and 2025 (11%)”, with average EPS of $243 in 2024 and $270 in 2025, the strategists said. 

However, they cautioned that the 30% rebound for stocks since bond yields peaked in October 2023, and the gains accumulated this year, 10% as of Thursday, may not be easily replicated in the short term, especially as Federal Reserve rate cuts are already being priced in. They added: 

“However, markets may not derate until the Fed starts hiking (not a 2024 story) or profits start to slow (again, not a 2024 backdrop)”. 

SocGen outlines three downside risks to bullish S&P 500 forecast 

Kabra and de Boissezon outlined potential risks to their forecast: 

• The 10-year Treasury yield rising back above 5% that could drive the S&P down to 4,600;  
• Retail gas prices surging beyond $4 a gallon, taking a psychological toll on U.S. consumers 
• The restart of interest rate hikes by the Federal Reserve, which is a risk for 2025 as profits continue to rise. 

As for the upside risks: 

• “If the market prices in the Nasdaq-100’s EPS with the same exuberance as it did for tech during the TMT bubble, we see the S&P 500 reaching 6,250”; 
• Combination of Fed interest rate cuts and a 10-year yield below 4% could be a boon for stocks, as per SocGen. 

BofA, UBS, Goldman all revise S&P 500 targets for 2024 

A number of Wall Street banks have also revised their S&P 500 targets upward this year, with Bank of America and UBS both setting their forecasts at 5,400. Barclays set its S&P 500 target slightly lower at 5,300. 

Goldman Sachs adjusted its S&P 500 forecast target to 5,200 in February, marking its second increase since the previous year.  

These adjustments reflect a cautiously optimistic stance following a notably bullish year for the stock market. 

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