How are energy investors positioned?
Investing.com -- Goldman Sachs raised its S&P 500 forecasts across the board, reflecting more supportive macro conditions and investor confidence in long-term (LT) earnings growth.
The bank now expects the index to reach 6,400 in three months, 6,600 by year-end, and 6,900 over the next twelve months. These mark increases from prior targets of 5,900, 6,100, and 6,500, and place Goldman’s year-end forecast near the top of the range among strategists.
The upward revisions are driven by several factors, including a change in monetary policy expectations.
“Earlier and deeper Fed easing and lower bond yields than we previously expected, continued fundamental strength of the largest stocks, and investors’ willingness to look through likely near-term earnings weakness support our revised S&P 500 forward P/E forecast of 22x (from 20.4x),” strategists led by David J. Kostin wrote.
Goldman kept its S&P 500 earnings growth projections unchanged at 7% for both 2025 and 2026, but noted risks related to tariffs and their impact on corporate profits. While earnings estimates remain broadly in line with consensus for 2025, Goldman is below the Street for 2026.
The bank’s strategists said recent inflation prints and corporate surveys point to lower-than-expected tariff pass-through so far.
However, they believe the digestion of tariffs will likely be gradual, and noted that large-cap companies "appear to have some buffer from inventories ahead of the increase in tariff rates."
“The strength of 1Q earnings results boosted our confidence that the largest stocks will sustain current investor expectations for their long-term growth for at least the next few quarters, helping support valuation for the aggregate S&P 500 index,” the note states.
Despite the S&P 500 reaching a fresh record, the rally remains unusually narrow. The median S&P 500 stock is still more than 10% below its 52-week high, prompting Goldman to argue that the breadth of gains is likely to improve.
“We believe a ‘catch up’ is more likely than a ‘catch down’ and expect the market rally to broaden during the next few months,” the strategists continued.
The bank’s latest positioning indicator has returned to neutral levels after remaining depressed through much of the recent rally. Historical data suggests that market upside often follows the start of a Fed cutting cycle, particularly when the economy continues to grow.
But even though Goldman expects the market rally to broaden in the coming months, it sees limited upside for small-caps and other “lower quality” stocks to sustain consistent outperformance.
The Wall Street firm continues to favor a balanced sector allocation, highlighting opportunities in Software (ETR:SOWGn) & Services, Materials, Utilities, Media & Entertainment, and Real Estate.