According to Bloomberg, Goldman Sachs strategists are maintaining their year-end forecast for the S&P 500 at a level of 5,200. However, they have also outlined a scenario in which tech megacaps could drive the index up by an additional 15%.

In a note led by strategist David Kostin, Goldman Sachs explained that the firm is sticking with its current prediction because the market has already priced in the expected trajectory of the federal funds rate and economic growth. However, due to the uncertain outlook for valuations, the analysts explored alternative scenarios beyond their base case.

One of these scenarios involves the possibility that valuations for megacap tech companies could continue to expand. Under this scenario, the S&P 500 could reach a level of 6,000 by year-end, with a forward price-to-earnings ratio of 23. The analysts noted that despite optimism around artificial intelligence (AI), long-term growth expectations and valuations for the largest technology, media, and telecom (TMT) stocks are not yet in "bubble" territory.

The S&P 500 has already risen by almost 10% this year and closed at 5,234.18 on Friday. This has already surpassed the year-end forecasts of many strategists. Factors such as positive US economic data, expectations of rate cuts by the Federal Reserve, and optimism surrounding AI stocks have contributed to the index's upward momentum.

However, Goldman Sachs highlighted that a significant portion of the market is still influenced by concerns over persistently high interest rates and elevated cost of capital. The analysts noted that a change in the interest rate outlook, without a deterioration in the economy, is crucial for the market rally to broaden.

Goldman Sachs also provided estimates for other potential scenarios. In a "catch-up" scenario, where the market reaches pre-pandemic 2018 valuations, the S&P 500 could end the year at 5,800. On the other hand, two more bearish scenarios involve a "catch-down" situation where sales-growth estimates prove overly optimistic, or where investors start pricing in the risk of a recession. Either of these scenarios may result in the S&P 500 ending the year at 4,500, according to the strategists.

As investors closely monitor the market, the potential impact of tech megacaps on the S&P 500's performance remains an area of interest. Goldman Sachs' analysis provides valuable insights into various scenarios that could shape the index's trajectory in the coming months.