Why Goldman Sachs Raised Its S&P 500 Target Again

As third-quarter earnings season begins, Goldman Sachs has once again raised its target for the S&P 500.

Led by David Kostin, the Goldman Sachs team has now increased its forecast for the S&P 500 to 6,000 in the next three months, up from the previous estimate of 5,600. Looking further ahead, they expect the index to reach 6,300 in 12 months, an upgrade from their prior projection of 6,000.

The driving force behind this upgrade is their optimism about earnings growth in 2025 and 2026. Goldman expects S&P 500 companies to earn $268 per share in 2025 and $288 in 2026, outpacing Wall Street’s consensus estimates of $265 and $281. Although these numbers are below aggregated estimates of $275 for 2025 and $307 for 2026, Goldman remains more positive than many of its peers.

“From a top-down view, our U.S. GDP growth forecast is above consensus. However, bottom-up earnings estimates are often too optimistic and tend to be revised down over time,” said the team.

Goldman Sachs attributes much of this confidence to expected improvements in profit margins. They now predict margins will increase to 12.3% in 2025, up from 11.5% in 2024, and will continue to rise to 12.6% by 2026. This marks a significant shift from their earlier projection of a 24-basis-point margin expansion in 2025, now revised to 78 basis points.

“The economic backdrop continues to support moderate margin growth, with prices rising faster than input costs,” they explained.

A portion of this margin improvement is also expected to come from industry-specific factors. Goldman anticipates that elevated research-and-development costs in healthcare, particularly for companies like Bristol-Myers Squibb, will stabilize. They also expect that one-time charges taken this year by Warner Bros. Discovery and Uber Technologies will not recur. Additionally, a recovery in the semiconductor industry and strong performance from large tech companies are anticipated to fuel growth.

While Goldman acknowledges that earnings surprises may moderate, they believe the continued strong demand for AI, as highlighted in their recent GS Communacopia Conference, will benefit key technology stocks.