Finimize - 📈 Goldman ups its S&P 500 forecast

What’s going on here?

After months of quiet, the US is loudly ramping up shale oil production and elbowing in on OPEC’s market share.

What does this mean?

US drillers are pushing out more oil than even they expected. They were forecast to pump out 12.5 million barrels a day this quarter, but that figure was recently bumped to 13.3 million – the equivalent of adding a new Venezuela to the oil scene. For OPEC, the timing couldn’t be worse: the group of oil-producing countries agreed last month to throttle back its output to help stop prices from dropping. Now, this unexpected supply growth is causing a stir and casting doubt over whether the group will stick to its supply-cutting plan.

Why should I care?

For markets: OPEC’s losing its grip.

The 17-year boom in US shale might have America feeling slick in its energy self-sufficiency, but it’s been anything but smooth for OPEC. It’s not just that the US is producing more crude and therefore buying less: it’s that the country isn’t part of the OPEC in-crowd. So the group can agree to cut production all it wants, but that won’t stop the US from flooding markets with the slippery stuff. Case in point: OPEC’s latest supply cuts have done nothing to keep oil prices from sliding. And American output has been tricky to predict – this surge happened despite the country working with 20% fewer rigs, thanks to production improvements.

The bigger picture: Faster, cheaper, stronger.

Never bet against US efficiency: it’s a force to be reckoned with. Big Oil’s recent wave of mergers was all about growing productivity and turning up the heat on profit. And if all this continues to send oil prices lower, all the better for emerging market stocks. Lower oil prices will dampen inflation, boosting the developing economies that import a lot of the stuff: India, Thailand, and the Philippines. That could even fuel the next rally in those countries’ stocks.

What’s going on here?

Just a month after unveiling its 2024 projections for the S&P 500, Goldman Sachs announced a newer, higher estimate.

What does this mean?

It’s not just investors feeling cheerful. The Federal Reserve is sounding more festive too, suggesting it’ll pull off a miracle by bringing down inflation without crumbling the economy and job market. The central bank is also dropping hints about interest rate cuts in the new year. That’s a divine mix: lower interest rates shrink borrowing costs, stimulating growth by encouraging spending and business investment. And they give stock and bond prices a lift too. No wonder, then, that Goldman’s boosting its end-of-2024 target for the S&P 500 to 5,100 – an 8% rise.

Why should I care?

For you personally: Find hidden gems.

Most of the market’s returns this year have been delivered by just a few stocks (hello, Magnificent Seven). But next year’s lower interest rates and resilient growth should allow other stocks to get in on the action. So Goldman plans to bet on companies with weaker balance sheets that are more sensitive to economic growth: once the recovery gets going, they’re likely to jump the most. Stocks from smaller firms should also do well: their lower valuations mean they’ve got room to improve, and their reliance on loans means they’ll get more relief from lower interest rates.

The bigger picture: A toast to half-filled glasses.

Yogi Berra was right: “it’s difficult to make predictions, especially about the future”. Just a year ago, investors were hunkering down, prepared for the worst – but the economy has managed to resist a recession and stocks have hit new highs. And sure, there are plenty of factors – like inflation, economic growth, and geopolitics – that could make these new, rosy forecasts seem out-of-touch by this time next year. But for now, it’s okay to celebrate: 2024’s shaping up to be a lot more jolly.