Wall Street is abuzz with optimism as two major financial institutions, Goldman Sachs and UBS, have raised their year-end targets for the S&P 500 index. The benchmark index has already hit record highs in 2024, exceeding the average Wall Street strategist year-end target in less than two months.

Goldman Sachs recently raised its year-end target from 5,100 to 5,200, while UBS now expects the S&P 500 to end the year even higher at 5,400, reflecting nearly an 8% increase from Tuesday's opening price. This positive outlook is fueled by expectations of robust earnings growth for S&P 500 companies, with analysts projecting a 3.2% growth in the fourth quarter and an overall growth of 10.9% for the full year 2024.

The optimism surrounding corporate earnings is supported by upgraded outlooks on US economic growth and mega-cap profit margins. Specifically, Goldman Sachs highlights the positive trend in earnings estimates for tech giants such as Apple, Alphabet, Microsoft, Amazon, Meta, Tesla, and Nvidia, which have seen a 7% increase in earnings estimates and an 86 basis point upward revision in margins.

Goldman Sachs believes that the Technology and Communication Services sectors, which include key tech stocks, will lead the earnings growth in 2024. The bank expects revenue growth driven by AI advancements and consumer strength, coupled with margin expansions from operational efficiency improvements.

However, despite the positive outlook, uncertainties loom over the stock market rally, particularly concerning sticky inflation. Recent market reactions to hotter-than-expected inflation reports have raised concerns about potential delays in Federal Reserve interest rate cuts. UBS analyst Jonathan Golub notes that while sticky inflation may pose risks, it could ultimately benefit corporates, as returns and profits are measured in nominal dollars.

As Wall Street continues to navigate market fluctuations and economic dynamics, analysts remain cautiously optimistic about the outlook for stocks in 2024, driven by strong earnings growth projections and positive market indicators.