Goldman Sachs strategists have raised the year-end target price for the S&P 500 index for the third time this year, anticipating further expansion of corporate profits and a stable macroeconomic outlook through 2025.
Goldman Sachs' Chief US Equity Strategist David Kostin stated in a report released last Friday that he now expects the S&P 500 index to close at 6000 points by the end of this year, the second highest target price given by Wall Street strategists.
As of Monday's close, the S&P 500 index fell 0.96% to 5695.94 points as traders reduced their bets on the Federal Reserve cutting interest rates.
Kostin's target price means that the potential return rate of the S&P 500 index is about 5% in less than three months left this year.
At the end of last year, Kostin and his team set the year-end target price for the S&P 500 index at 4700 points in 2024. In February of this year, the team raised the target price of the S&P 500 index to 5200 points, and in June it was raised again to 5600 points.
Kostin also raised its 12-month target price for the S&P 500 index from 6000 points to 6300 points.
Enterprise profits are expected to further expand
The main driving force behind our upward adjustment of earnings per share expectations for 2025 is the further expansion of (corporate) profits, "Kostin said." We expect (corporate) sales to grow by 5%, roughly in line with nominal GDP growth. We now expect (corporate) net profit margin to increase by 78 basis points in 2025, compared to the previous expectation of 24 basis points
Kostin stated that his assumption is based on a relatively "stable" macroeconomic outlook, with an average real GDP growth rate of 2.3% in 2025 and 2.0% in 2026.
At the micro level, Kostin emphasized three reasons why he expects corporate profits to further expand in the coming year.
Firstly, Kostin stated that in 2024, the special expenses and write downs of some S&P 500 index constituent companies dragged down corporate profits, and there should be some easing in 2025. These companies include Bristol Myers Squibb, Gilead, and Warner Bros. Exploration.
Secondly, Kostin believes that the recovery of the semiconductor cycle should boost the earnings per share of technology companies by 2025.
The shipment volume of integrated circuits (excluding storage chips) - a predictive indicator of semiconductor profit margins - is about 10% lower than the historical trend. The regression trend of (shipment volume) should lead to an expansion of profit margins before 2026, "Kostin explained.
Finally, large technology companies are expected to continue achieving steady profit growth, thanks in part to the trend of artificial intelligence.
The recent Goldman Sachs Exchange and Technology Conference indicates that the demand for artificial intelligence continues to be strong, which should benefit these stocks, "Kostin said.