Goldman Sachs projected that the S&P 500 will reach 6,500 points by the end of 2025which would represent an increase of 11% compared to current levels. If this forecast comes true, the rise would remain at the 46th percentile of the historical 12-month returns of the index since 1980.
Goldman Sachs’ forecast coincides with that of its competitor Morgan Stanley, which also sets a target of 6,500 points for the S&P 500 in the next 12 months. The bank expects the recentThe expansion in profit growth will continue next yearsupported by the reduction of interest rates by the Federal Reserve and the improvement of economic cycle indicators.
Goldman Sachs’ forecast is based on the hypothesis of a continued economic expansion in the United States, 11% earnings growth in 2025 and slight compression of the price/earnings multiple (PER) in the medium term.
Goldman Sachs’ outlook for the S&P 500 includes expectations that the Income growth will align with nominal GDP growth. In more concrete terms, the bank forecasts a 5% increase in index sales, in line with its projection of real GDP growth of 2.5% and a slowdown in inflation to 2.4% by the end of the year. next year.
Besides, Goldman sees net margins expanding which would rise to 12.3% in 2025 and continue to 12.6% in 2026. The bank’s economic team also expects Donald Trump’s administration to implement selective tariffs on imported automobiles and certain imports from China, as well as such as a 15% tax rate for domestic manufacturers.
“On a net basis, the impact of these policy changes on our EPS forecasts is largely offset,” Goldman Sachs said in its report.
Regarding the valuation, the document highlights that the PER multiple of the S&P 500 index has increased from 17 times at the end of 2022 to 21.7 times today, reaching the 93rd percentile historically.
Looking ahead, Goldman Sachs’ fair value model anticipates a slight compression of the P/E multiple, putting it at 21.5x by the end of 2025. Additionally, the profitability gap between the S&P 500’s earnings performance and the performance of 10-year US Treasury bond is approximately 280 basis points.
S&P500: what are the risks set by Goldman Sachs
The Wall Street firm noted that, although the equity market already incorporates a favorable macroeconomic outlook and high valuations, there are significant risks for 2025.
It is noted that high multiples may indicate lower short-term performance and, in the event of negative shocks, could intensify market declines.
“Based on our baseline macroeconomic outlook, both the economy and earnings will continue to grow, and bond yields will remain at current levels,” the note said. “However, the risk of events remains high towards 2025, including the possible threat of a widespread tariff and the risk associated with even higher bond yields.”
On the other hand, a more favorable fiscal policy or a more dovish stance from the Federal Reserve could generate upside risks.
Source: Ambito
