Goldman Sachs (NYSE:GS) has spotlighted a group of seven technology stocks, known as the "Magnificent Seven," which includes Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), and Tesla (NASDAQ:TSLA), for their standout financial performance and strong balance sheets. These companies are expected to continue leading the market into the next year due to their ability to reinvest and drive superior financial results.
Chief U.S. Equity Strategist at Goldman Sachs, David Kostin, has identified these tech giants as critical players in the stock market. They are often referred to by financial acronyms and are benchmarked against a specific index to track their collective performance.
In the backdrop of a resilient economy with a robust labor market and cooling inflation, Goldman Sachs offers an optimistic outlook. The unemployment rate was recorded at 3.9% in October, with a year-on-year price increase standing at 3.2%. Jan Hatzius of Goldman Sachs forecasts a GDP growth of 2.4% for 2023 and expects similar growth of 2.1% in 2024.
The Federal Reserve's monetary policy is anticipated to shift towards gradual rate cuts in the second half of 2024, with Hatzius assigning a 15% chance of recession within the next 12 months. The S&P 500 is projected to see moderate growth, ending at 4,700 next year, marking a 5% increase.
Kostin recommends focusing on quality stocks as a high-conviction investment approach and predicts modest earnings growth of 5% for both 2024 and 2025. Profit margins are likely to maintain stability during this period. The normalization of supply-demand imbalances that arose during the COVID pandemic has contributed to lower inflation while sustaining satisfactory GDP growth. Currently, the S&P 500 trades at a price-to-earnings (P/E) ratio of 18; however, on an equal-weighted basis, this ratio drops to 14.
This financial assessment by Goldman Sachs underscores the enduring strength and potential resilience of these leading tech companies amidst economic uncertainties.
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