Goldman Sachs forecasts S&P 500 to hit 8,700 points next year despite slower earnings growth
Goldman Sachs predicts the S&P 500 will rise to 8,700 points within 12 months, an over 14 per cent upside from its last close, driven by attractive valuations after a sharp selloff. The brokerage expects slower earnings growth in 2027, with US earnings growth dropping to 11 per cent from 36 per cent
Goldman Sachs has forecast that the benchmark S&P 500 index will climb to 8,700 points over the next 12 months, representing an over 14 per cent upside to the index's last close of 7,592.40 points. The Wall Street brokerage said more attractive valuations following a recent sharp selloff should help equities deliver positive returns despite slower earnings growth.
The call closely follows a massive selloff in the biggest technology companies after the Democratic win in the US midterm elections last week spurred concerns of a slowdown in data centre buildout. Goldman expects earnings growth rates in global markets to at least halve in 2027, with the US alone likely to drop to 11 per cent from 36 per cent, possibly due to hyperscaler capital expenditure growth easing.
The slowdown in spending would weigh on earnings across the artificial intelligence (AI) infrastructure complex, but with more attractive valuations, positive but slower economic and earnings growth as well as lower bond yields and inflation, equities will continue to rise next year, Goldman said in a note on Thursday. Valuations remain attractive, with the S&P 500 last trading at around 18.5 times its 12-month forward earnings, well off its recent highs of over 23 times.
Within equities, Goldman maintained an "overweight" rating for the US and Japan, "neutral" for Asia and emerging markets, and "underweight" for Europe. "From here, we expect equities to generate positive returns, albeit with higher volatility than in recent years," it said.
Troubles at chip giant Nvidia after long-time Chief Executive Officer Jensen Huang quit following reports of alleged extramarital affairs have added to worries about the AI trade. Nvidia trades at about 11.7 times its 12-month forward earnings estimates, its lowest since February 2012, according to data compiled by LSEG.