Goldman Sachs Lowers Its Target for the S&P 500. The Mechanics Are the Most Interesting Part

Wall Street strategists are finding it increasingly difficult to maintain their confidence as U.S. tariff policies continue to shift.

‍

JPMorgan recently reaffirmed its year-end target for the S&P 500 but acknowledged it may take longer to achieve. Citigroup also stuck to its forecast but no longer considers U.S. stocks a buying opportunity. Meanwhile, Goldman Sachs has taken a more cautious approach. Led by David Kostin, the Goldman team lowered its year-end projection for the S&P 500 to 6,200 from 6,500—a modest reduction, but one that reflects growing concerns about the economic impact of rising tariffs.

‍

A deeper look at Goldman’s revised forecast reveals adjustments to both earnings expectations and valuation multiples. The firm reduced its estimate for S&P 500 earnings per share (EPS) in 2025 to $262, down from $268, while the broader Wall Street consensus remains at $270. This downward revision was largely influenced by Goldman’s economists lowering their U.S. GDP outlook earlier in the week due to anticipated tariff increases of 10 percentage points.

‍

According to Goldman’s calculations, every 5-percentage-point increase in tariff rates reduces S&P 500 earnings by approximately 1% to 2%. Additionally, the revised earnings forecast reflects rising uncertainty and tighter financial conditions.

‍

Beyond the EPS adjustment, Goldman also lowered its valuation multiple. The team reduced the projected price-to-earnings (P/E) ratio for the S&P 500 to 20.6 times forward earnings, down from 21.5. While uncertainty-driven valuation pressures tend to be temporary, the Goldman strategists suggested that the prospect of slower economic growth could weigh on valuations for a longer period.

‍

Despite these more cautious assumptions, Goldman’s new target of 6,200 still implies a rebound from the current market level. As of Tuesday’s close, the S&P 500 stood at 5,572. However, the path to that higher target remains uncertain.

‍

Goldman Sachs believes that for investors to reverse the current market downturn, two things may be required: either a clear catalyst to improve the economic growth outlook or strong evidence that the market is presenting asymmetric upside potential. Without such signals, investors are likely to remain hesitant, unwilling to “catch the falling knife” and risk further losses.

‍

To support their case, Goldman analysts presented a chart comparing the indexed return of cyclical versus defensive stocks with consensus GDP forecasts. The chart suggests that current equity prices reflect growth expectations below even Goldman’s already conservative GDP projection. This indicates that the market is pricing in a more pessimistic economic scenario than many analysts are forecasting.

‍

Still, Goldman acknowledges the risk that the economic picture could deteriorate further. The firm warned that a significant decline in the broader economic outlook remains the primary concern for market performance moving forward.

‍

Historical data underscores the magnitude of that risk. During recessions, the S&P 500 has typically declined by 24% from peak to trough, far exceeding the 9% drop the index has experienced so far in 2025. If economic conditions worsen, the market could have further to fall.

‍

Yet, history also provides a reason for optimism. Since 1980, buying the S&P 500 after a 10% decline—when no recession followed—has led to positive returns 86% of the time within six months. This suggests that, absent a major economic contraction, the current market pullback could present a buying opportunity for patient investors.

‍

Goldman’s revised forecast reflects the delicate balance investors must navigate. While the team remains cautiously optimistic that the S&P 500 can reach 6,200 by year-end, much depends on the broader economic environment and whether tariff-related concerns subside. For now, the market’s trajectory hinges on whether upcoming data and policy shifts provide the reassurance investors need to regain confidence.

‍