Goldman Sachs has raised its earnings forecast for the S&P 500, predicting a growth of more than 20% over the next two years. The investment bank’s optimistic projection is largely driven by the potential impact of President-elect Donald Trump’s proposed tax cuts for corporations.
Goldman’s strategists expect that earnings per share (EPS) for the S&P 500 could rise by about 20% through 2025, with their full-year 2024 EPS forecast at $241. This would be followed by an 11% increase in 2025 and a 7% increase in 2026, bringing the expected EPS to $288. However, they noted that these projections could exceed expectations if Trump’s proposed tax cuts are implemented, providing a significant boost to corporate earnings.
Trump has campaigned on reducing the corporate tax rate from the current 21% to 15%, a move that Goldman Sachs estimates could raise S&P 500 EPS by nearly 1% for each percentage-point reduction. This potential tax reform has emerged as an “upside risk” to the bank’s forecast, especially following the election results, which have increased the likelihood of such changes.
The rally in stocks following Trump’s re-election bid reflects investor optimism. On the day after the election, the stock market surged, with Bank of America reporting a record $20 billion inflow into U.S. stocks. Additionally, financial funds saw a $2.9 billion inflow—the largest single-day increase on record.
However, Goldman Sachs also warned that Trump’s trade policies, specifically his proposed tariffs, could pose a risk to corporate earnings. The investment bank pointed out that a 5% increase in U.S. tariff rates could reduce S&P 500 EPS growth by up to 2%. While past trade conflicts, such as the 2018-2019 trade war with China, saw companies offset the cost of tariffs by passing them on to consumers, Goldman suggests that increased tariffs could still hurt earnings through weaker consumer spending, retaliatory tariffs, and heightened economic uncertainty.
Additionally, economists have raised concerns that Trump’s economic policies, including the proposed tariffs, could fuel inflation. If this happens, it could lead to higher interest rates, which might further complicate the earnings outlook for U.S. companies.
In conclusion, while Goldman Sachs sees the potential for strong earnings growth driven by tax reform and deregulation, the risks tied to tariffs and inflationary pressures could dampen the overall impact. Investors will be closely monitoring how Trump’s economic policies unfold in the coming years.
