Goldman Sachs strategists raised their 2025 S&P 500 earnings per share (EPS) forecast to $268, up 11% year-over-year from their previous estimate of $256 (+6%). They also introduced a 2026 EPS estimate of $288, reflecting 7% growth, while maintaining their full-year 2024 EPS forecast at $241.
Wall Street’s 2025 and 2026 EPS forecasts – $268 and $288 respectively – are higher than the top-down consensus estimates ($265 and $281), but lower than the bottom-up consensus ($275 and $307 dollars).
While their strategists predict that US GDP growth will beat consensus, they note that bottom-up EPS estimates tend to be overly optimistic and are often revised downward.
“Our 2025 and 2026 EPS estimates imply a 3% downside revision to bottom-up consensus each year, slightly less negative than the historical pattern,” the strategists said in a recent note.
Looking further ahead, analysts have lowered expectations for Q3 2024 EPS growth from 9% to 4%, a marked change from the 11% growth seen in Q2.
Citing data from their macroeconomic model, Goldman strategists said the S&P 500’s current forward price-to-earnings (P/E) ratio of 22x is in line with fair value. They expect that multiple to remain stable at 22x through the end of 2024, but may shrink slightly to 21x within the next 12 months.
Over the next three months, the bank expects minimal changes in the macroeconomic environment. However, he cautions that valuations could fluctuate as markets digest the potential political outcomes of the 2024 US election.
Looking further ahead, it forecasts slower economic and earnings growth for 2026, along with slightly higher real yields, which may lead to a slight contraction in the price-to-earnings (P/E) multiple.
Therefore, Goldman’s updated outlook points to a 3-month S&P 500 price target of 6,000, down from a previous estimate of 5,600. They also set a 6-month target of 6100 and a 12-month target of 6300, compared to their previous forecast of 6000.
Strategists assume the market will capitalize on earnings per share of $274 by the end of the year – representing a 1% decline from the bottom-up consensus – and $300 in 12 months, a 2% revision. That implies a 10% return on prices over the next year, slightly below the average return of 12% since 1980.
“We believe returns will be limited by the elevated initial valuation,” the strategists note.
They also describe potential risks to their prediction. If the P/E multiple stays at 22x, the S&P 500 could reach 6600 in 12 months, offering a 15% upside.
Historically, periods in which valuations exceeded their model fair value have occurred during post-recession recoveries, although strategists note that in the 1998 cycle both economic growth and the Fed’s rate-cutting environment led to in excess of the fair value by 40%.
Should the P/E increase to 23x, similar to the 2021 average, the S&P 500 could reach 6900, a 20% gain. However, if growth weakens, the index could fall to 18x, or 5400, representing a 6% decline.
At Bro In Finance, we are committed to helping traders navigate the complexities of the forex market. Our in-depth analysis, expert insights, and advanced tools empower you to make informed decisions and achieve your trading goals. Whether you’re a beginner or an experienced trader, Bro In Finance is your trusted partner in mastering the forex market. Visit our website for more trading tips and strategies to enhance your trading experience.
Check out our on Best Forex Brokers to know more about this topic
Check out the most crucial steps that you need to take when choosing your forex broker
Have you heard about an amazing Broker Platform called “AVATRADE“? We at Bro In Finance do recommend this amazing broker.
Check out here to figure out the best funded trader program: Which Funded Challenge is Best
Reference;
Karaahmetovic, V. (2024) Goldman Sachs raises S&P 500 EPS, index price target ahead of 3Q earnings By Investing.com, Investing.com. Investing.com. Available at: https://www.investing.com/news/stock-market-news/goldman-sachs-raises-sp-500-eps-index-price-target-ahead-of-3q-earnings-3650371 (Accessed: 7 October 2024).
