LIVE MARKETS-Goldman pulls back outlook for S&P 500

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GOLDMAN PULLS BACK OUTLOOK FOR S&P 500

Citing higher tariffs, weaker economic growth and higher inflation than previously assumed, Goldman Sachs chief U.S. equity strategist David Kostin pulled back his expectations for S&P 500 index .SPX levels for the next 3, 9 and 12 months in a research note emailed late Sunday.

The strategist now sees the S&P 500 falling 5% over the next 3 months, compared with his expectation for it to be flat and he reduced his estimate for 12 month returns to an increase of 6% from his earlier expectation for an advance of 16%. And by year-end 2025, Kostin now sees the S&P 500 rising to 5700, well below his previous target of 6,200.

He made the call while also cutting EPS expectations for the S&P 500, now targeting 3% growth for 2025 to $253 vs previous expectations for 7% growth. For 2026 he sees S&P 500 EPS growth up 6% vs previous 7% estimate, bringing it to $269.

Kostin notes that the estimates are below both strategist consensus - and equity analyst consensus - expectations.

Slower growth and higher uncertainty would warrant lower valuation multiples according to Kostin who notes that after entering 2025 with a P/E of 21.5 it was trading at 20x at the time of writing. He's forecasting a further near-term decline with a 19x P/E in 3 months before a modest increase to 19.5x in 12 months.

In a separate note the firm's economists raised the probability of a U.S. recession to 35% from 20% saying it expects more rate cuts by the Federal Reserve, as President Donald Trump's tariffs roil the global economy and upend financial markets.

Trump said on Sunday that his reciprocal tariffs to be announced this week will include all countries and not a more limited number.

Still, Kostin notes that while his firms sentiment indicator has declined sharply in the last few weeks to -1.2, its is still "above levels reached at the troughs of other major sell-offs during recent years" with the lows being -2.0 or lower.

The equity market started out all red in sympathy with the strategist's views although by late morning all three major indexes were above their session lows and the Dow Industrials .DJI is managing a small gain as were most of the 11 major S&P 500 sectors.

(Sinéad Carew)

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