Despite client concerns over high valuations and narrow market breadth, Goldman Sachs’ chief US equity strategist David Kostin has reaffirmed his optimistic outlook for the S&P 500. Kostin expects the benchmark to reach 6400 in three months, 6600 in six months and 6900 in 12 months. He argues that earnings, rather than valuations, represent the primary uncertainty surrounding his forecast.
Kostin acknowledges investor apprehension regarding potential impacts from tariffs imposed by the US. He notes that the degree to which companies can pass tariff costs onto consumers will be a key focus during the upcoming second-quarter reporting season. Current estimates suggest companies have passed on only 40 per cent of tariff costs, lower than the expected 70 per cent. Should firms absorb a larger share of these costs, profit margin and earnings expectations may need to be revised downwards.
Addressing concerns about the market’s narrow advance, Kostin sees potential opportunity. He believes that if investor confidence in the operating environment strengthens, there is room for a broader market catch-up. However, sustained outperformance by lower-quality stocks would likely require stronger economic growth and lower interest rates than currently anticipated.
FactSet senior equity analyst John Butters noted weaker-than-average early results for the June quarter, with the index reporting its lowest year-over-year earnings growth rate since the fourth quarter of 2023 at 4.0 per cent. Despite this, Wall Street analysts are projecting earnings growth of 7.3 per cent for the third quarter, 6.5 per cent for the fourth, and 9.0 per cent for 2025. Kostin maintains that current valuation multiples, though high relative to history, are appropriate given declining interest rates, low unemployment, and elevated corporate profitability.
