Goldman's Kostin Sticks to 6,800 Year-End S&P 500 Target

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00:00Let's bring in David Koston, Chief U.S. Equity Strategist at Goldman Sachs.

00:04He's bullish on stocks with an S&P 500 year-end target of 6,800.

00:09David, we'll broaden out to some of those consumer comments in a moment,

00:12but we have to first start with the elephant in the room.

00:14You are bullish on stocks, but we've already surpassed 6,800.

00:18Are you looking at raising your price target for this year-end?

00:22Well, I think the thing you really have to start first is look at earnings.

00:26What's happened to the results so far for U.S. corporate companies reporting

00:31with looking at expectations was around 6% year-over-year growth.

00:36It's coming at 8% for the full year.

00:38The market's looking pretty strong in terms of the profit growth,

00:42and that's really been the story and the trajectory of the index.

00:45The broader index has been following the path of earnings.

00:49We're expecting earnings to grow into 2026.

00:51The expectation is that the Fed is likely to be cutting both this week and then in December

00:57and then twice next year, so that's four Fed cuts.

01:00And that's, generally speaking, been a tailwind for stocks when the Fed is in an easing mode,

01:05as long as we don't go into recession.

01:06That's not part of our forecast, meaning that we're expecting the economy to grow.

01:11The Fed's easing, and you have an environment where corporate earnings and guidance continues

01:15to be pretty robust.

01:16So I think those are the building blocks.

01:19When we look out, you know, a year, Tom, roughly 7,200 is a target that we published,

01:23and I think the backdrop remains pretty solid for equities in that context.

01:29So, okay, so your target is 7,200 for a year out next year in October, November.

01:37What about earnings growth for 2026?

01:41Because you just said you're expecting now 8% for 2025, and is that a little bit of a slowdown,

01:48and does that slowdown continue in terms of earnings growth into next year?

01:51Well, Matt, just to clarify, so the first half of the year, earnings were up 12% year over year.

01:56Expectation on consensus was around 6% for this quarter, and it's coming in roughly 8%,

02:03so we're getting positive surprises.

02:05That's been pretty consistent in the last sort of eight quarters, last couple of years.

02:10Roughly four percentage points positive surprises versus expectations.

02:14And we look out this year, you know, into next year, probably 7% is our baseline number,

02:19and probably the risk of that forecast is probably to the upside as opposed to the downside.

02:24I think the issue to think about is companies are really ramping up their CapEx.

02:29And so we look at the capital spending growth year over year, is going to be this year,

02:33or looking into next year for 2026, greater than the amount of capital they're directing towards buybacks.

02:38And I think that's indicative of the fact that a lot of corporate managements are pretty optimistic

02:42around their fundamental business, the potential for AI and adoptions that they are trying to do

02:49in different areas of their business practices.

02:52I think those are, generally speaking, Matt, some of the reasons why, from an earnings perspective,

02:56companies are likely to continue to grow their profits.

02:59And over time, that has been the driver of equity prices.

03:02Earnings drive stocks over time, and that's pretty optimistic.

03:06You know, last week, we had a Goldman Sachs event in California.

03:08We had 100 members of the venture capital and private equity community.

03:13A lot of those businesses, of course, really, those professionals, very optimistic about the fundamentals.

03:18And also looking at what's happening in the IPO market.

03:20We've had a pretty robust IPO market thus far this year, about 50 transactions.

03:24The average deal's up nearly 30% on the first day's trading, so they've done pretty well.

03:29Obviously, with the shutdown of the government, a lot of that has been on hold for some of the transactions coming up.

03:36But the idea of capital still coming to the equity market, our sentiment indicator is still,

03:41in terms of positioning of market participants, still on a relatively muted level.

03:45So there's still potential capacity for purchasing there.

03:49So those are some of the drivers, both on an earnings perspective, on a capital flow perspective,

03:54that would make us pretty optimistic with respect to the trajectory of equities.

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