Source: Sharecast
"The increased return forecast reflects increased estimates for S&P 500 earnings following an exceptionally strong Q1 reporting season," the bank said.
Goldman raised its S&P 500 earnings per share forecasts to $340 for 2026 and to $385 for 2027. This implies year-on-year growth of 24% and 13%, respectively.
The bank said the beneficiaries of AI infrastructure investment will account for roughly half of S&P 500 EPS growth this year.
"Earnings growth has powered the entire S&P 500 return so far this year, and we expect this dynamic will continue in coming months," Goldman said. It noted that year-to-date, the increase in consensus forward EPS estimates has outpaced the S&P 500 price gain, resulting in a decline in the P/E multiple.
"In fact, during the past two years, near-term earnings growth has arithmetically accounted for the entire 40% rise in the S&P 500, with today’s 21x S&P 500 P/E multiple matching its multiple in May 2024," it said.
"Going forward, our base case is for a market multiple that remains flat as the valuation tailwind from modestly lower Treasury yields is offset by the valuation headwind from decelerating economic and earnings growth, investor scepticism about the persistence of earnings tied to the AI infrastructure build-out, and continued uncertainty around both AI disruption and the geopolitical outlook."