Goldman Sachs raises US stock target price three times this year! Will it reach 6300 points?

As the third quarter earnings season approaches, Goldman Sachs has once again raised its year-end and 12-month forward targets for the S&P 500 Index, expecting corporate profit margins to expand and macroeconomic outlook to remain stable through 2025.

Led by the firm's chief analyst David Kostin, the team has raised its forecast for the S&P 500 Index for at least the third time this year. Last Friday, Goldman Sachs raised its 12-month target from 6000 points to 6300 points and increased its year-end target for the S&P 500 Index from 5600 points to 6000 points, implying a 4.32% increase from the previous week's close of 5751.07 points.

Their rationale is that Goldman Sachs is more optimistic about earnings in 2025 and 2026 compared to most on Wall Street. They expect next year's earnings per share (EPS) for the S&P 500 Index to reach $268, an 11% year-over-year increase, and to reach $288 in 2026. This is higher than Wall Street's other companies' forecasts of $265 for 2025 and $281 for 2026, but lower than the aggregated earnings expectations of all companies, which are $275 for 2025 and $307 for 2026.

In their report last Friday, Kostin's team stated, "From a top-down perspective, our economists are more bullish on U.S. GDP growth than the market consensus. However, bottom-up analyst consensus EPS forecasts are often overly optimistic and tend to decline over the forecast period. Our estimates for future EPS reflect a stable macroeconomic outlook... (and) the main driver behind the upward revision of our 2025 EPS forecast is the greater profit margin expansion."

The Goldman Sachs team stated that what truly drives their new optimism is their view on profit margin expansion. They expect profit margins to rise from the estimated 11.5% this year to 12.3% next year, and further increase to 12.6% in 2026. The Goldman Sachs team previously expected a 24 basis point expansion in profit margins for 2025, but now it is 78 basis points.

Data from August showed that the U.S. economy grew faster than expected in the second quarter, with strong consumer spending and a rebound in corporate profits helping to sustain economic expansion. They stated:

"The macro environment remains conducive to modest profit margin expansion, with pricing growth outpacing input cost growth. The momentum from large tech stocks and the recovery in the semiconductor industry cycle will further support corporate EPS growth."