Goldman Sachs(US:GS) Hua Er Jie Jian Wen·2025-09-21 10:43Core Viewpoint - Goldman Sachs' analysis indicates that the Federal Reserve's interest rate cuts will support the U.S. stock market, provided the economy avoids a recession [1][2]. Group 1: Federal Reserve and Market Impact - The Federal Reserve implemented its first interest rate cut since December 2024, leading to a 1% increase in the S&P 500 index, marking the 27th record high of the year [1]. - Goldman Sachs economists predict two more 25 basis point cuts this year and two additional cuts in 2026, aligning with current market expectations [1]. - The S&P 500 index's total return of 14% this year is driven by 55% from earnings growth and 37% from valuation expansion [1]. Group 2: Earnings as a Driving Force - Goldman Sachs' chief U.S. equity strategist, David J. Kostin, states that corporate earnings will become the primary driver of stock prices as the market has priced in the Fed's policy path [2]. - The forward P/E ratio of the S&P 500 has risen from 21.5 to 22.6 since the beginning of the year, which is considered close to fair value given the current macroeconomic and corporate fundamentals [2]. - Earnings per share (EPS) for the S&P 500 is expected to grow by 7% in both 2025 and 2026 [2]. Group 3: Investor Sentiment and Tactical Opportunities - Despite the stock market reaching historical highs, investor positioning remains low, providing a tactical upside opportunity [3]. - Goldman Sachs' sentiment indicator currently reads -0.3, indicating that stock investor positioning is still "low" [3]. - The report suggests that if the macro environment remains stable, there is significant potential for capital inflow into the stock market [3]. Group 4: Updated Market Predictions - Goldman Sachs has revised its target levels for the S&P 500 index to 6800, 7000, and 7200 points for the next 3, 6, and 12 months, respectively, indicating an approximate 8% upside potential from current levels [4].