Goldman Sachs sees S&P 500 rising to 8,700 next year despite slower earnings growth

Detailed summary

Goldman Sachs expects the benchmark S&P 500 to climb to 8,700 points over the next 12 months, as more attractive valuations following a recent sharp selloff should help equities…

Goldman Sachs expects the benchmark S&P 500 to climb to 8,700 points over the next 12 months, as more attractive valuations following a recent sharp selloff should help equities deliver positive returns despite slower earnings growth.

The Wall Street brokerage's target price represents an over 14 percent upside to the index's last close of 7,592.40 points.

Goldman's call closely follows a massive selloff in the biggest technology companies after the Democratic win in the US midterm elections last week spurred concerns of a slowdown in data center buildout.

The brokerage expects earnings growth rates in global markets to at least halve in 2027, with the US alone likely to drop to 11 percent from 36 percent, possibly due to hyperscaler capex growth easing.

The slowdown in spending would weigh on earnings across the AI infrastructure complex, but with more attractive valuations, positive but slower economic and earnings growth as well as lower bond yields and inflation, equities will continue to rise next year, Goldman said in a note on Thursday.

Valuations remain attractive, with the S&P 500 last trading at around 18.5 times its 12-month forward earnings, well off its recent highs of over 23-times.

Within equities, Goldman maintained an "overweight" rating for the US and Japan, "neutral" for Asia and emerging markets, and "underweight" for Europe.

"From here, we expect equities to generate positive returns, albeit with higher volatility than in recent years," Goldman Sachs said.

Troubles at chip giant Nvidia after long-time CEO Jensen Huang quit following reports of alleged extramarital affairs have added to worries about the AI trade.

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