(Reuters) - Goldman Sachs raised its year-end target for the benchmark S&P 500 to 5,200, reflecting roughly a 4% upside from current levels, citing an improved earnings outlook for the index companies.

The brokerage had previously projected the index to end 2024 at 5,100, before raising the forecast from 4,700 in December, on cooling inflation and expectations of the U.S. central bank easing rates in the year.

Goldman on Friday forecast an 8% profit increase for S&P 500 companies this year, fuelled by an improved U.S. economic outlook and stronger mega-cap profit margins.

"We expect strong world GDP growth and a slightly weaker dollar will support EPS, while lower rates and lower oil prices will be a slight drag," said David Kostin, lead strategist at Goldman Sachs.

Kostin expects the earnings strength of mega-cap stocks, especially those in the Magnificent 7, boosting aggregate S&P 500 profits in 2024. The growth in artificial intelligence and consumer strength is expected to propel revenue growth alongside margin expansion, Kostin added.

He expects the Magnificent 7 stocks to post the strongest earnings growth among S&P 500 sectors.

For the rest of the index, operating margins should also improve, but to a "much smaller" degree, as input costs, such as wage growth, continue to moderate alongside robust sales growth and only modest further price disinflation, Kostin said.