Goldman Sachs has released its 2025 equity outlook. The firm predicts the S&P 500 will gain 11% from its current level. This translates to a 12% total return when dividends are included.
David Kostin, head of Goldman’s equity strategy team, wrote in a note that their view is based on continued U.S. economic expansion. They expect earnings growth of 11% in 2025 and 7% in 2026. The team also anticipates a forward P/E multiple of 21.5x at the end of next year.
Goldman has set its new S&P 500 target at 6,500. This is up from the benchmark’s close of 5,893.62 on Monday. The index jumped 24% in 2024 due to cooling inflation and rising enthusiasm for artificial intelligence.
Initially, Goldman had been too conservative in its 2024 outlook.
Goldman sees 11% S&P gain
Last November, it forecasted a 5% increase to 4,700.
It later raised its target to 5,100 as stocks rallied. The latest 2024 year-end prediction by Goldman stands at 6,000. Regarding the impact of policies from President-elect Donald Trump, Goldman sees potential tariffs and a lower tax rate offsetting each other.
The report stated, “Our economists assume the Trump administration will impose targeted tariffs on imported automobiles and select imports from China. They also assume a 15% corporate tax rate on domestic manufacturers. On net, the impact of these policy changes on our EPS forecasts roughly offset one another.”
Goldman Sachs has highlighted five strategies for navigating the upcoming year.
These include investing in the ‘Magnificent 7’ stocks, increased merger activity, small business-focused stocks, AI monetization phase, and sector preferences. However, the report also cautions that 2025 could be volatile, particularly with the market’s current high valuation. The report says, “High multiples are weak signals for near-term returns, but typically increase the magnitude of market drawdown during a negative shock.
Event risk remains high heading into 2025, including from the potential threat of across-the-board tariffs and the risk of even higher bond yields.”
Overall, while Goldman Sachs remains optimistic about the market’s growth potential in 2025, it advises careful consideration of the economic and policy-related risks ahead.
