Goldman Sachs Lowers S&P 500 Forecast Amid Inflation and Growth Concerns

Goldman Sachs has revised its outlook for the S&P 500, citing a more challenging economic landscape marked by rising inflation, slowing growth, and increased trade tariffs. In a research note sent out late Sunday, David Kostin, the bank's chief U.S. equity strategist, announced a more cautious stance on expected market performance over the coming months.

Short-Term Market Outlook: S&P 500 to Dip 5%

Kostin now anticipates the S&P 500 will decline by approximately 5% over the next three months, a notable shift from his previous projection, which expected the index to remain relatively flat in the near term. This change reflects growing uncertainty in the macroeconomic environment and shifting investor sentiment.

12-Month Forecast Slashed from 16% to 6% Growth

The strategist also lowered his 12-month forecast for the S&P 500, predicting a 6% rise in the index compared to his earlier estimate of a 16% increase. Looking further ahead, Kostin now expects the benchmark index to reach 5,700 by the end of 2025, a downward revision from his previous target of 6,200.

Earnings Growth Expectations Also Cut

Alongside the downgrade in index levels, Goldman Sachs has also adjusted its earnings per share (EPS) outlook for the S&P 500. The firm now projects EPS growth of just 3% in 2025, translating to $253 per share, down from a previously estimated 7% increase. For 2026, EPS is forecasted to grow by 6% to $269, slightly below the earlier 7% growth forecast.

These projections now fall below both strategist and equity analyst consensus estimates, reflecting a more conservative view of corporate profitability in the face of economic headwinds.

Valuation Multiples Expected to Decline Further

Kostin also highlighted the impact of economic conditions on market valuations. At the beginning of 2025, the S&P 500 was trading at a price-to-earnings (P/E) ratio of 21.5, which has since fallen to 20x. The strategist expects a further pullback to 19x over the next three months, before a modest rebound to 19.5x over the next year.

According to Goldman Sachs, these lower valuations reflect the broader risks facing markets, including reduced investor confidence, geopolitical tensions, and the ongoing impact of tighter monetary policy.

Conclusion: A More Cautious Outlook from Wall Street Giant

Goldman Sachs’ downward revisions to both index levels and earnings growth underscore growing concerns about the resilience of the U.S. economy. As inflation persists and global trade tensions rise, the firm sees a tougher road ahead for equity markets.

(Sources: reuters.com)