Goldman Sachs’ chief US equity strategist, David Kostin, has set a bullish tone for Wall Street, projecting the S&P 500 (^GSPC) to reach a year-end target of 6,500 by 2025. This forecast represents an estimated 11% increase from current levels, aligning with similar optimistic predictions from Morgan Stanley and BMO Capital Markets.
Sustained Growth Amid Event Risks
Kostin’s forecast hinges on stable economic growth, consistent earnings, and bond yields remaining steady. However, he noted potential challenges, such as the looming possibility of sweeping tariffs and rising bond yields, which could disrupt this growth trajectory as 2025 unfolds.
Shifting Influence from the Magnificent Seven
A significant insight from Kostin’s report highlights a projected shift in stock market performance. The “Magnificent Seven”—tech titans like Apple (AAPL), Alphabet (GOOGL, GOOG), Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA)—have outperformed the broader index significantly in recent years. However, their influence is expected to wane in 2025, with earnings growth margins predicted to narrow.
Kostin’s analysis anticipates that while these tech leaders will still outperform, their dominance will not be as pronounced. This change opens the door for broader performance gains across the remaining S&P 493 companies.
Shifting AI Market Dynamics
Goldman Sachs also foresees a shift in the leadership of the AI market. The firm suggests that while “infrastructure” companies such as Nvidia will continue to play a role, greater gains may come from “enabled revenues” companies—those that harness AI to boost their sales but do not sell AI infrastructure themselves. Meta and Apple are identified as key players in this transition.
Small Business Sentiment and M&A Activity
Kostin’s report, titled after Donald Trump’s “Art of the Deal,” anticipates that the president-elect’s administration could foster an environment conducive to mergers and acquisitions (M&A) and increased activity among small and medium-sized businesses. He referenced a surge in the National Federation of Independent Businesses (NFIB) small business optimism index in late 2016 as an indicator of potential future trends.
Goldman Sachs compiled a list of 60 companies with at least half of their revenues tied to small business spending, including Meta, Deere & Company (DE), and Waste Management (WM). Kostin believes that renewed “animal spirits” and enhanced small business sentiment could uplift these stocks’ earnings and valuations through 2025.
Kostin’s analysis underlines a potential broadening of market performance beyond the concentrated growth in tech giants. With the expected resurgence in small business activity and evolving AI market dynamics, the S&P 500’s growth in 2025 may see contributions from a more diverse range of sectors and companies.
