Goldman Sachs revamps S&P 500 target for 2026

Goldman Sachs has revised its S&P 500 targets, forecasting 6600 by year-end 2025 and 6900 by mid-2026, predicated on expectations of imminent Federal Reserve rate cuts. This outlook is driven by weakening labor market data, including a 4.3% unemployment rate and an 892,362 total in layoffs for 2025 (up 66% YoY), which Goldman believes will prompt the Fed to initiate three cuts in 2025 and two in 2026, thereby supporting corporate earnings growth despite rising CPI.

Analysis

Goldman Sachs has revised its S&P 500 forecast, setting price targets of 6600 for year-end 2025 and 6900 for mid-2026, driven by the expectation of imminent Federal Reserve rate cuts. This outlook is predicated on a weakening labor market, evidenced by the unemployment rate rising to a cycle-high 4.3%, layoffs increasing 66% year-over-year, and job openings falling to 7.2 million from a peak above 12 million. Goldman analysts believe this deterioration will compel the Fed to pivot from its inflation focus, despite CPI rising from 2.3% to 2.7% since April, and to initiate three rate cuts in 2025 followed by two more in 2026. The forecast for a 2% gain through year-end and a 6% gain by mid-2026 suggests muted returns from the current index level of 6,481.50. This tempered optimism is underpinned by Goldman's relatively conservative earnings per share (EPS) growth forecast of 7% for both 2025 and 2026, which is significantly below the Wall Street consensus of 10.6% and 13.6% respectively. The firm anticipates that the economy will avoid a recession and that market gains could be supported by "catch-up" trades, as the median S&P 500 stock remains 11% below its 52-week high despite the index's record levels.

Key Decisions for Investors

• Given Goldman's forecast for modest upside of 2% to year-end 2025, investors should maintain a constructive but disciplined stance on US equities, tempering expectations for the rapid gains seen since April.
• Consider focusing on stock selection and identifying potential 'catch-up' trades in quality companies that have lagged the index, as the median S&P 500 constituent is still 11% below its 52-week high.
• Closely monitor upcoming labor data and CPI reports, as the investment thesis hinges on the Fed prioritizing employment over inflation; any deviation could delay the anticipated rate cuts and challenge the market outlook.
• Scrutinize corporate earnings revisions, as Goldman's EPS growth forecast of 7% is well below the consensus, and any downward convergence of analyst estimates toward this more conservative figure could pressure valuations.