Goldman Sachs has upgraded its S&P 500 forecast for the third time this year, now projecting that the index will reach 6,000 within three months, up from a previous estimate of 5,600.
The investment bank anticipates that the S&P 500 will hit 6,300 in the next 12 months, an increase from the earlier forecast of 6,000.
This shift in outlook comes as the third-quarter earnings season begins, with a team led by David Kostin expressing increased optimism about earnings margins. Goldman Sachs forecasts that earnings per share (EPS) for the S&P 500 will be $268 next year and $288 in 2026, surpassing the expectations of many analysts on Wall Street.
Goldman’s perspective is driven by expectations of margin expansion, projecting profit margins to increase from an estimated 11.5% in 2024 to 12.3% in 2025 and further to 12.6% in 2026. This optimism contrasts with typical analyst consensus, which the firm believes tends to be overly optimistic and is often revised downward over time.
The firm notes that the current macroeconomic environment supports this outlook, as they expect prices charged by companies to outpace rising input costs. Additionally, Goldman anticipates that costs related to research and development in the healthcare sector will normalize, while certain one-time charges experienced by companies like Warner Bros. Discovery and Uber Technologies are unlikely to recur. The firm also expects a recovery in the semiconductor market and ongoing strength among major technology firms.
As economic indicators remain strong, Goldman Sachs has reduced the probability of a recession to 15%. The firm’s updated outlook coincides with favorable labor market data, including the creation of 254,000 jobs in September and a drop in the unemployment rate to 4.1%. These indicators have reassured investors about the robustness of the US economy.
Market Watch and Quartz contributed to this report.