Goldman Sachs has projected a positive outlook for the U.S. stock market, forecasting that the benchmark S&P 500 will reach 8,700 points over the next 12 months. This target suggests an upside of more than 14% from the index's recent closing level of 7,592.40 points. According to the firm, lower stock valuations following a recent market correction have created an environment conducive to positive returns, even as the pace of corporate earnings growth is expected to decline.
The brokerage noted that global earnings growth could be halved in 2027, with U.S. earnings growth potentially falling to 11% from a previous rate of 36%. This slowdown may be linked to hyperscalers reducing their capital expenditure, which exerts pressure on the AI infrastructure sector. Despite this, the firm maintains that continued economic growth, softer bond yields, and easing inflation will support equities in the coming year.
Market sentiment recently faced a setback following a sharp selloff in technology stocks, which both The Times of India and The Economic Times reported was triggered by concerns over data centre expansion following the Democratic party's victory in the U.S. midterm elections. Additionally, the AI sector is grappling with internal instability at chipmaker Nvidia, following the resignation of long-time CEO Jensen Huang amid reports of alleged extramarital affairs.
Goldman Sachs continues to favor U.S. and Japanese equities, maintaining an "overweight" rating for both markets. The firm remains neutral on Asia and emerging markets, while holding an "underweight" stance on Europe. While analysts anticipate positive returns, they cautioned that investors should prepare for higher market volatility than what has been experienced in recent years.
Key facts
- The S&P 500 target is 8,700 points, representing a 14% increase from the last close of 7,592.40.
- The index is trading at 18.5 times its 12-month forward earnings, down from recent highs of over 23 times.
- U.S. earnings growth is projected to drop to 11% in 2027 from the current 36%.
- Nvidia is trading at 11.7 times its 12-month forward earnings, the lowest level since February 2012.
Background
The market forecast follows a period of significant volatility and a notable selloff among major technology companies, partly driven by shifts in the U.S. political landscape and capital expenditure trends in AI infrastructure.
Source: Times of India, Economic Times
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