Goldman Sachs has upwardly revised its forecast for the S&P 500. The bank now expects the index to finish the year at 6,800, reach 7,000 within six months, and climb to 7,200 over the next year. Apparently, volatility, recession threats, and anxious headlines have not been enough to shake Goldman’s faith in the power of corporate earnings.
These projections imply potential returns for investors of 2%, 5%, and 8%, respectively—not dizzying, but solid enough, given that the US market is already at historical highs.
Earnings remain the key driver of the forecast. The bank expects corporate earnings per share to grow confidently: up by 7% in 2025 and a similar figure in 2026. According to estimates from Goldman Sachs, earnings growth already explains 55% of the index’s advance, while multiple expansion accounts for 37%, and dividends have contributed another 8%, a modest but reliable share.
Strategists led by David Kostin noted in new research that, with yields remaining relatively stable, corporate earnings are expected to continue serving as the primary driver of stock market growth. Yields have stabilized, meaning cash is ready to seek opportunity in equities—that is their reasoning.
The forecast upgrade coincided with the Federal Reserve’s first interest rate cut since 2024. The regulator decreased the benchmark rate by 25 basis points. Goldman Sachs expects the Fed to go further: two more cuts this year and two more in 2026, ultimately lowering rates into the 3–3.25% range.
This, of course, is a positive for market valuations, especially in the technology and cyclical sectors. Still, Goldman Sachs remains cautious: in their view, multiples are now close to fair value, and expecting a dramatic re-rating without economic softening is unrealistic.
Meanwhile, investor positioning remains “light,” as the bank put it. The Goldman Sachs sentiment indicator hovers near -0.3, pointing to a lack of enthusiasm instead of greed. This may actually be an advantage. If the macroeconomic backdrop remains stable, the market will have room to grow without overheated expectations.
Goldman Sachs points out that history also favors further growth. In previous rate-cutting cycles, the S&P 500 delivered median 6- and 12-month returns of 8% and 15%, respectively. Historically, the standouts following cuts have been the IT sector and consumer staples. In addition, stocks with strong growth and high volatility also performed well.
Rate-sensitive investments (such as fixed income), however, may start to lose their appeal, the bank warns. Goldman Sachs prefers to bet on companies with high levels of floating-rate debt, as they benefit most when borrowing costs decline.
