The S&P hit Goldman’s year-end target last week. So, nine months early.

The (very short) backstory of David Kostin’s 2024 forecast encapsulates the rally zeitgeist.

In mid-November, during the first weeks of what would become a monumental five-month ascent for equities, Kostin set a 2024 S&P target of 4,700. “At this time next year, portfolio managers will look back and realize the best investment strategy for 2024 was to follow Taylor Swift’s advice in the song from her 1989 album: ‘All You Had To Do Was Stay’ — invested,” he wrote. A hopeless eye-roller, I know. But sage advice as it turns out. Four months later, the S&P’s up 20%. Kostin raised his target along the way. Twice actually. To 5,100 in mid-December and to 5,200 in February. That’s the rally for you: Raise your target or fall behind.

With the US benchmark now sitting above Goldman’s twice-raised year-end forecast, Kostin isn’t ready to lift his target again. Yet. But in his latest, he did posit what he called a “mega-cap exceptionalism” scenario in which the S&P runs to 6,000.

“We previously argued that the current growth stock rally is different from the 2021 and Tech Bubble experiences because investors today focus on profitability [and] although AI optimism appears high, long-term growth expectations and valuations for the largest TMT stocks are still far from ‘bubble’ territory,” Kostin wrote, sketching the contours. (For more on Goldman’s approach to assessing the risk of a dot-com-style de-rating for the market leadership based on failure to meet longer-term growth expectations, see “Inside The Bubble“.)

He noted that the cap-weighted benchmark traded beyond a 100% valuation premium to its equal-weight counterpart during the dot-com boom and at a 30% premium during 2021’s “everything bubble.”

Currently, that premium is ~25%. Kostin described the takeaways from Nvidia’s global artificial intelligence conference as “encouraging,” and indicative of robust demand against “constrained supply.” The implication: It’s certainly possible the mega-caps could re-rate further.

If you assume, for argument’s sake, a 45% valuation premium for the cap-weighted index versus a 16x forward multiple for the equal-weighted gauge, the S&P would re-rate by another 10% to trade on a 23 multiple. That’s how Goldman gets to the 6,000 “mega-cap exceptionalism” case, as illustrated by the table on the right, below.

The footnote finds Kostin explaining the math: He takes the mid-point of his top-down index EPS forecast for 2025 and consensus, then applies different multiples for different scenarios.

I’ll gently note that the multiplication doesn’t always work exactly, but that’s math: Malleable! (I’m kidding. I hope.)

In addition to the bank’s baseline and “mega-cap exceptionalism,” the table posits three other scenarios.

The “catch-up” scenario entails the equal-weighted gauge re-rating to 18x to match the pre-pandemic high reached in 2018 and the cap-weighted gauge boasting a relatively modest 20% P/E premium, which would rank in the 73%ile. In that scenario, the benchmark would end 2024 at 5,800.

In both the “recession risk” and “catch-down” scenarios, the index trades down to 4,500, albeit for different reasons.

If top-line growth for the mega-caps disappoints, the cap-weighted gauge could de-rate both in absolute terms and relative to the equal-weighted index. In a situation where the valuation premium compresses to 15% on a 15x P/E for the equal-weighted gauge, you get a selloff to 4,500.

Another way to get down to what, somewhat amusingly, is Mike Wilson’s year-end target, would be a recession. “Although our economists still forecast a soft landing, further weak growth data could reignite investor anxiety and push the aggregate index P/E multiple down to 17x, 19% below today, Kostin wrote, before quickly suggesting downside would be “limited because the Fed has ample room to cut in response to a negative growth shock.”

As noted above, Kostin’s comfortable keeping his year-end target at 5,200 for now. After all, the current forward P/E for the index already ranks in the 89%ile going back three decades and the equal-weighted gauge is 93%ile percentile on that score. “Both our expected path of the Fed funds rate and our above-consensus economic growth forecast appear to already be priced by markets,” Kostin wrote.