Goldman Sachs Updates S&P 500 EPS Forecasts

Goldman Sachs strategists have raised their 2025 S&P 500 earnings per share (EPS) forecast to $268, indicating an 11% year-over-year increase, up from the previous estimate of $256 (+6%). They have also introduced a 2026 EPS estimate of $288, reflecting a 7% growth, while maintaining their full-year 2024 EPS forecast at $241.

The firm’s projections for 2025 and 2026 EPS — $268 and $288 respectively — are higher than top-down consensus estimates ($265 and $281) but lower than bottom-up consensus ($275 and $307).

While the strategists predict U.S. GDP growth will outperform consensus, they caution that bottom-up EPS estimates tend to be overly optimistic and often face downward revisions. They noted that their 2025 and 2026 EPS projections imply a 3% negative revision to bottom-up consensus yearly, slightly less than the historical trend.

In the near term, analysts adjusted expectations for 3Q 2024 EPS growth from 9% to 4%, down from the 11% growth seen in 2Q. According to their macro model data, the S&P 500’s current forward price-to-earnings (P/E) ratio of 22x is consistent with fair value, expecting this multiple to remain unchanged by the end of 2024 but possibly contracting to 21x over the next 12 months.

Over the next few months, Goldman expects minimal changes in the macro environment, though acknowledges potential valuation fluctuations as markets assess policy outcomes from the 2024 U.S. elections. Looking ahead to 2026, they forecast slower economic and earnings growth alongside modestly higher real yields, which may lead to a slight contraction in the P/E multiple.

Goldman’s updated outlook suggests a 3-month S&P 500 price target of 6000, revised up from 5600, a 6-month target of 6100, and a 12-month target of 6300, compared to the previous forecast of 6000. They anticipate the market will capitalize EPS of $274 by year-end (1% reduction from bottom-up consensus) and $300 in 12 months (2% revision), implying a 10% price return over the next year, slightly below the median 12% return since 1980.

The strategists point out potential risks: if the P/E remains at 22x, the S&P 500 could reach 6600 in 12 months, resulting in a 15% upswing. They reminisce historical valuations exceeding fair value during post-recession recoveries but cite the 1998 cycle where economic growth and Fed rate cuts led to a 40% overshoot of fair value.

If the P/E rises to 23x, similar to 2021’s average, the S&P 500 could reach 6900, showcasing a 20% gain. Conversely, if growth falters, the index may drop to 18x, equating to a 5400 level or a 6% downside.