Goldman Sachs Lifts S&P 500 Target to 6,800 on Earnings Growth

S&P 500 earnings growth and Fed policy support drive Goldman’s bullish market outlook through 2026

Key Takeaways

• Goldman Sachs raises S&P 500 year-end target to 6,800 from 6,600, projecting returns of 2% by year-end, 5% in six months, and 8% over 12 months from current levels.
• Earnings growth drives optimism with 11% S&P 500 EPS growth projected for 2025 and 7% for 2026, led by technology, communication services, and financial sectors.
• Federal Reserve accommodative policy supports equity markets following the first rate cut since 2024, with two additional cuts anticipated this year amid stable long-term interest rates.

Introduction

Goldman Sachs has increased its S&P 500 forecasts, anticipating robust earnings growth will drive further gains despite elevated valuations. The investment bank now predicts the index will reach 6,800 by year-end, representing a significant upward revision that reflects growing confidence in corporate earnings resilience and Federal Reserve policy support.

The forecast upgrade comes as the S&P 500 trades at historically high valuations, with the index’s forward price-to-earnings multiple climbing to 21.7 times earnings. Goldman’s strategists believe earnings momentum and accommodative monetary policy will sustain market gains through 2026.

Key Developments

Goldman Sachs revised its 2025 year-end S&P 500 target to 6,800 from the previous forecast of 6,600. The bank projects the index will reach 7,000 within six months and 7,200 over the next 12 months, indicating sequential gains as economic momentum builds.

The revision centers on earnings growth projections, with S&P 500 earnings per share expected to rise 11% in 2025 and 7% in 2026. Technology sector companies led second-quarter earnings growth, contributing significantly to the index’s 11.68% headline EPS expansion.

Federal Reserve policy shifts provide additional market support. The central bank implemented its first rate cut since 2024, reducing the federal funds rate by 25 basis points, with two more cuts anticipated this year and additional reductions expected in 2026.

Market Impact

The S&P 500’s forward 12-month earnings per share stands at $292, up 7.4% year-to-date. Technology sector margin expansion has contributed meaningfully to overall profitability gains across the broader index.

Earnings growth has accounted for 55% of 2025 returns, compared to 37% from valuation expansion and 8% from dividend contributions. This earnings-driven performance contrasts with previous periods when multiple expansion dominated returns.

The index currently trades at the 93rd historical percentile for valuation metrics, indicating elevated investor expectations. Despite high multiples, Goldman’s Sentiment Indicator registers -0.3, suggesting light investor positioning that could support near-term gains.

Strategic Insights

Goldman Sachs identifies three overweight sectors for 2025: Materials, driven by critical mineral demand and industrial recovery; Software & Services, benefiting from artificial intelligence productivity gains; and Health Care, supported by demographic trends and biotechnology innovation.

The technology sector’s strategic advantages include operating leverage, supply chain optimization, and continued investment in AI infrastructure. Companies are deploying capital expenditure and research budgets to capture market share in cloud computing and software platforms.

Historical analysis supports the current outlook, with the S&P 500 delivering median returns of 8% over six months and 15% over 12 months during previous rate-cutting cycles when economic growth remained intact. Information Technology and Consumer Discretionary sectors typically lead performance in such environments.

Expert Opinions and Data

“With long-term interest rates relatively stable, earnings should remain the primary driver of equity upside going forward,” strategists led by David Kostin stated in a research note. The team emphasizes that Federal Reserve accommodation and economic acceleration into 2026 should support current market multiples.

According to Investing.com, Goldman attributes its revised forecasts to Federal Reserve policy that maintains market liquidity while corporate earnings growth outpaces GDP expansion. The firm projects 2.5% real GDP growth compared to 5% sales growth for S&P 500 companies.

“An accommodative Fed and an economy that accelerates into 2026 should allow the market to maintain its current multiple,” the strategists concluded. This outlook incorporates potential policy changes from a Trump administration, including targeted tariffs and tax cuts that may offset each other’s earnings impact.

Conclusion

Goldman Sachs’ upgraded S&P 500 targets reflect confidence in earnings-driven market gains supported by accommodative Federal Reserve policy. The forecast balances optimism about corporate profitability and innovation cycles against risks from elevated valuations and policy uncertainties.

Technology sector leadership continues through AI investment and cloud adoption, while diversification across Materials and Health Care sectors provides additional growth opportunities. The interplay between monetary policy, corporate performance, and regulatory developments remains central to market trajectory through 2026.