Goldman is raising their near-term S&P target. Or perhaps it’s more apt to say they’re marking it to market.

With the benchmark hovering above 4,100 even after Friday’s swoon, 3,600 (David Kostin’s old three-month target) might’ve been stale, so he raised it to 4,000. It wasn’t an endorsement of the rally, though. The bank’s year-end target, also 4,000, was unchanged.

Earnings season in the US hasn’t been a disaster. But it hasn’t been great by any stretch either. All in all, results are on pace to show a 1% YoY decline in aggregate profits, consistent with expectations at the start of reporting season.

So, it’s not earnings optimism that’s bolstering stocks. The “under-the-hood” view suggests the rally on Wall Street is increasingly speculative and thereby unstable. A panicky grab for upside evidenced by record call option volumes looked to be facilitating the dreaded “spot up, vol up” dynamic at one juncture this week, for example.

“Stocks have been crashing-up on a force-in, with all-time record call volumes seen in US equities options,” Nomura’s Charlie McElligott remarked.

On the macro front, Kostin said “recent developments have strengthened our economists’ confidence in a soft landing and reduced equity downside risk in the near-term.” He also noted that “Jerome Powell this week did little to push back on the easing of financial conditions.”

Given that, Goldman’s sense is that drawdown risk is limited for now, and “barring unforeseen data surprises.” That informed Kostin’s decision to lift his three-month target for the benchmark.

He acknowledged the “force-in” mentioned above. “As shown this week, still-light institutional investor positioning points to the risk of a chase that would see the market temporarily overshoot,” he wrote, noting that the bank’s Most Shorted basket is up an amusing 27% this year.

Although US reals have come down dramatically in 2023 in lockstep with the broader easing in financial conditions that critics worry Powell isn’t concerned enough about, they haven’t receded anywhere near enough to justify the re-rating in equities.

“Relative to real interest rates, the valuation of the S&P 500 ranks in the 84th percentile,” Kostin cautioned, noting that stocks are trading on “an even higher ‘effective’ multiple if one accounts for the fact that most investors appear to expect earnings well below those of analyst estimates.”

On Thursday, BofA’s Michael Hartnett suggested investors might consider fading SPX 4,200, which could mark the peak for this bear market rally. In that context, it’s notable that Kostin sees the “upper-bound” of fair value at 4,250 in the near-term.

That level (4,250 SPX) would reflect a 19x multiple on an estimated $224 in index-level earnings for 2023. It’d be the same multiple US equities traded on in February of 2020, on the eve of the pandemic.