From their prior estimate of $256 (+6%), Goldman Sachs analysts have increased their 2025 S&P 500 earnings per share (EPS) prediction to $268, representing an 11% year-over-year rise. Also, they have kept their full-year 2024 EPS prediction at $241 but have added a 2026 EPS projection of $288, representing a 7% gain.
The Wall Street giant has projected EPS for 2025 and 2026 of $268 and $288, respectively, which is higher than the top-down ($265 and $281) but lower than the bottom-up ($275 and $307) consensus predictions.
Their strategists predict that the US economy will develop faster than expected, but they also point out that bottom-up EPS predictions are usually too high and often get revised down.
In the short term, experts have lowered their projections for 3Q 2024 EPS growth from 9% to 4%, which is a significant departure from the 11% rise shown in 2Q.
The strategists at GS stated that the S&P 500's current future price-to-earnings (P/E) ratio of 22x is in line with fair value, citing data from their macro model. By the end of 2024, they anticipate this multiple to stay stable at 22x, but it could slightly contract to 21x in the upcoming 12 months.
They project somewhat higher yields and slower economic and profit growth for 2026, which might lead to a little decline in the price-to-earnings (P/E) multiple.
As a result, Goldman has raised its 3-month S&P 500 price forecast from 5600 to 6000 in its revised view. In addition, they increased their projection to 6,100 for the next six months and set a target of 6300 for the next twelve months.
Analysts project that the market will capitalise EPS of $274 by year's end, which is 1% less than the bottom-up consensus, and $300 in the next 12 months, which is a 2% revision. This suggests a 10% price return during the upcoming year, which is just less than the typical 12% return observed since 1980.
They also list any possible threats to their prediction. There may be a 15% gain in the S&P 500 in a year if the P/E multiple maintains its current level of 22x.
If the price-to-earnings ratio increases to 23x, which is in line with the average for 2021, the S&P 500 may rise 20% to 6900. The index may fall to 18x, or 5400, indicating a 6% decline, if growth slows significantly.
(Sources: investing.com, reuters.com)
