Goldman Sachs Upgrades S&P 500 Year-End Target to 6600 as Anticipation of Fed Rate Cuts and Strong Large-Cap Fundamentals Fuel Optimism

Goldman Sachs has significantly raised its year-end target for the S&P 500 index to 6600 points, marking a sharp increase from previous expectations. The upward revision reflects two main factors driving this optimistic outlook: an anticipated acceleration in the Federal Reserve's rate-cut timeline, likely to commence in September, and the sustained strength in the fundamentals of large-cap stocks, which continue to demonstrate robust profitability and growth prospects.

In its latest research report released on Monday evening, Goldman Sachs noted that enhanced expectations for earlier and more pronounced rate cuts from the Federal Reserve, coupled with the sturdy financial conditions of major listed companies, have led to an upward adjustment of the S&P 500 index's return expectations over three, six, and twelve months.

Specifically, Goldman Sachs increased its three-month return forecast for the S&P 500 to 3%, equating to an index level of 6400 points. The six-month return expectation has been raised to 6%, with a year-end target of 6600 points, a substantial upgrade from the previous estimate of 6100 points. The twelve-month return projection has also been elevated to 11%, corresponding to an S&P 500 index level of 6900 points.

Goldman Sachs identified two primary reasons for the upward revisions: firstly, a shift in market expectations regarding the Federal Reserve's monetary policy, with a consensus forming around the likelihood of earlier and potentially more significant rate cuts than previously anticipated. Secondly, the strong fundamental performance of large-cap stocks continues to provide solid support for the index's rise.

The current S&P 500 index is hovering around the 6230 level. Goldman Sachs has brought forward its expectation for the Federal Reserve’s rate cut timeline, suggesting a possible commencement in September. This potential shift marks a three-month advancement from Goldman’s prior forecast, with Chief U.S. Economist David Mericle indicating a slightly greater than 50% likelihood of a September rate cut.

The revised rate cut projection is informed by preliminary indications that this year's tariff policy impact is less than expected, while other disinflationary factors are stronger than anticipated. Additionally, the Federal Reserve may align with Goldman’s view that the effect of tariffs on price levels will be transitory.

Furthermore, signs of a weakening employment market have emerged. Despite an overall healthy labor market, finding jobs has become more challenging. Seasonal effects in the data and changes in immigration policy are also short-term risks for employment figures. Looking ahead, Goldman forecasts the Federal Reserve will refrain from cutting rates at the July FOMC meeting but anticipates reductions of 25 basis points in September, October, and December 2025, with additional cuts in March and June 2026. Mericle suggests that a preventative rationale would naturally lead to actions at consecutive meetings.