Goldman's 7,600 S&P Target: The Earnings Outlook and Its Valuation Paradox

The foundation for Goldman's bullish case is a forecast of steady corporate expansion. The S&P 500 is projected to rise to 6,500 by the end of 2025, , . This growth is anchored to the broader economy, as revenue growth at the index level is expected to align with nominal GDP, . The incoming administration's policy mix, including targeted tariffs and tax cuts, is seen as having a roughly offsetting impact on earnings forecasts.

The primary engine for this profit expansion is a generational wave of M&A activity. Global deal volume in the $10 billion-plus category more than doubled last year to , a trend that Goldman Sachs itself helped lead as the top global M&A advisor. This surge is accelerating, with greater macro clarity on policy and regulation fueling corporate confidence and a strategic desire to transform portfolios. The activity is particularly concentrated in technology, where AI-driven consolidation is reshaping the industry stack.

Yet the most potent driver is the "secret sauce" of . These are not abstract promises but tangible profit levers. The forecast hinges on a select group of tech giants to deliver outsized earnings growth. Specifically, . Companies like NVIDIA, Apple, Microsoft, Alphabet, Amazon, Broadcom, and Meta are expected to see their revenue and margins boosted by the widespread adoption of artificial intelligence, turning technological investment into bottom-line expansion.

This creates the setup for a valuation paradox. While earnings are projected to grow steadily, the market's current price already reflects significant optimism. , . In other words, the market is pricing in a strong earnings trajectory, leaving little room for error. The coming year's performance will hinge on whether the AI productivity gains and M&A-driven growth can fully justify these elevated valuations.

The Valuation Paradox: High Growth vs. High Multiples

The bullish case rests on a precarious balance. Goldman's target of 7,600 by 2026 , but this projection relies heavily on significant valuation expansion. The market is already priced for perfection, trading at a forward P/E ratio in the . This premium multiple means investors have already paid for a high-quality earnings trajectory, leaving minimal cushion for disappointment.

The path to 7,600 requires that this elevated multiple not only hold but widen. Goldman's own model suggests a direct link between bond yields and equity valuations: every 50 decline in real bond yields is associated with a roughly 3% increase in the S&P 500 forward P/E. The bank's forecast for lower yields from earlier Fed rate cuts provides a clear tailwind. In fact, they estimate that every 100 basis-point decline in bond yields would boost the index. This dynamic is central to the thesis, as falling rates make stocks more attractive relative to bonds, supporting higher multiples.

Yet the required expansion is immense. . To reach 7,600, the market must not only absorb continued earnings growth but also see this multiple climb further. This is a bet on sustained dominance from a narrow group of mega-cap tech stocks. The forecast hinges on seven major tech stocks driving 46% of total S&P 500 earnings growth in 2026. Their ability to consistently deliver AI-driven productivity gains is the non-negotiable condition for justifying the current premium.

The primary risk is the market's high valuation leaving little room for error. As Goldman notes, the recent rally has been extremely narrow, . This lack of breadth makes the index vulnerable. A "catch down" by the recent market leaders is a distinct possibility if the outlook for corporate earnings-particularly for those dominant tech giants-worsens. Any stumble in the AI productivity narrative or a delay in the promised earnings acceleration would directly challenge the elevated multiples that are already baked into the 7,600 target. The paradox is clear: the same AI and M&A forces driving growth are also inflating valuations to a point where they become their own source of vulnerability.

Policy Crosscurrents: Tariffs, Taxes, and Trade

The policy landscape is a key variable in the earnings equation, delivering a mix of headwinds and tailwinds that Goldman Sachs Research estimates will roughly offset. The incoming administration's trade policy, centered on targeted tariffs, is a primary source of uncertainty. Economists at the bank project the effective U.S. tariff rate will rise to , . This creates clear sector-specific pressures, particularly for companies with significant import exposure or complex global supply chains.

The immediate impact on corporate profitability is a point of active debate. Goldman's baseline assumes companies will pass on 70% of the direct cost of tariffs to consumers through higher prices. However, early signals from earnings reports are mixed. Some firms have announced modest price increases, while others have absorbed more of the cost, . The resolution of this tension-whether companies can pass costs on without triggering demand destruction-will be a critical test for the earnings outlook.

This tariff pressure is expected to be largely counterbalanced by planned fiscal stimulus. The bank notes that the impact of these policy changes on our earnings-per-share forecasts roughly offset one another. The growth in certain sectors and the broader effect of targeted tax cuts are seen as providing a sufficient counterweight to the trade-related costs. This net-zero effect on the top-line earnings forecast is a crucial assumption for the bull case, allowing the AI and M&A-driven growth stories to take center stage.

A near-term catalyst for deal momentum and market breadth will be the resolution of major pending M&A bids. The high-stakes competition, such as the dueling offers for Warner Bros., has already helped fuel a historic surge in mega-deals. With , the market is in the midst of a generational consolidation wave. The conclusion of these high-profile transactions will provide a concrete signal of deal-making confidence and could catalyze further activity across the index, adding a layer of breadth to the narrow rally led by tech giants.

Yet the net-zero policy impact introduces a layer of uncertainty. The earnings outlook now depends on a precise balancing act, where tariff costs are absorbed or passed on, and tax benefits materialize, all while the broader economy and corporate margins hold firm. Any deviation from this offsetting scenario could quickly alter the trajectory of the S&P 500's earnings growth, making the policy crosscurrents a persistent source of volatility beneath the surface of the bullish forecast.

Market Structure: Breadth, M&A, and Catalysts

The current rally is a story of extreme concentration. While the S&P 500 has rallied , . This narrowness, driven by a handful of mega-cap tech giants, creates a structural vulnerability. The forecast for 7,600 by 2026 assumes this leadership will persist and even expand. The primary catalyst for that expansion is a surge in M&A activity, which Goldman Sachs Research sees as a generational wave. With greater macro clarity on policy and regulation fueling corporate confidence, the bank expects a significant acceleration in dealmaking, particularly in technology where AI-driven consolidation is reshaping the industry stack.

Yet the risk is that this anticipated catalyst fails to materialize. If the promised wave of mega-deals does not arrive as forecast, the entire earnings-driven rally would be forced to rely on AI productivity gains from a still-narrow group of companies. This would leave the market with a single, overvalued growth engine, making it highly susceptible to a "catch down" in leadership. The key watchpoint for this dynamic will be the Q2 earnings reports, which begin on July 15. These results will provide the first concrete data on how tariff costs are being absorbed or passed on, directly testing the margin resilience that underpins the earnings growth forecast.

The trajectory of bond yields will be the other critical test. . The bank's forecast for lower yields provides a clear tailwind for the required multiple expansion. However, if yields hold firm or rise, it would directly challenge the thesis that elevated multiples can be justified. The market's structure, therefore, is a bet on two fronts: that M&A will broaden the rally, and that falling rates will support the valuation premium. Any stumble in either narrative could quickly expose the narrow foundation of the current advance.