Goldman raises S&P 500 targets, expects earnings to remain key driver

Author Vahid Karaahmetovic

Published 09/22/2025

© Reuters

Investing.com — Goldman Sachs has raised its S&P 500 forecasts, saying robust earnings growth should drive further gains even as valuations remain elevated.

The bank now expects the index to reach 6800 by year-end, 7000 in six months, and 7200 over the next 12 months, implying returns of 2%, 5%, and 8% respectively from current levels. The revision reflects Goldman rolling forward its 3-, 6- and 12-month return forecasts.

Earnings growth is seen as the key driver. Goldman projects S&P 500 EPS to rise 7% in both 2025 and 2026, with earnings accounting for the majority of this year’s 14% total return.

The bank said EPS growth has contributed 55% of returns so far in 2025, compared with 37% from valuation expansion and 8% from dividends.

“With long-term interest rates relatively stable, earnings should remain the primary driver of equity upside going forward,” strategists led by David Kostin said in a note.

The upgrade comes after the Federal Reserve delivered its first rate cut since 2024, lowering the funds rate by 25 basis points. Goldman’s economists expect two more cuts this year and two more in 2026, leaving the terminal rate at 3–3.25%.

While the policy shift has helped valuations expand, the Wall Street bank sees current multiples as broadly fair, with real 10-year Treasury yields unlikely to fall much further without a deterioration in the economic outlook.

Investor positioning remains light despite record highs, with Goldman’s Sentiment Indicator at -0.3. The bank said this adds to the near-term upside case if the macro backdrop stays supportive.

Historical trends also reinforce the view, as the S&P 500 delivered median six-month and 12-month returns of 8% and 15%, respectively, in past cutting cycles where growth continued.

Goldman highlights that Information Technology and Consumer Discretionary sectors have historically led in similar environments, while high-growth and high-volatility stocks tend to outperform.

Rate-sensitive trades, however, may fade, with the bank preferring exposure to firms carrying high floating-rate debt, which directly benefits from lower borrowing costs.

Overall, Goldman expects U.S. equities to extend gains, supported by steady growth, accommodative Fed policy, and earnings momentum.

“An accommodative Fed and an economy that accelerates into 2026 should allow the market to maintain its current multiple,” the strategists said.