Why did Goldman Sachs just upgrade its S&P 500 target?

Goldman Sachs just lifted its 3-month target for the S&P 500 Index (SP: .INX) to 5,900 points.

After almost entering a bear market, the S&P 500 Index is now flat for the year. 

Last night, the Nasdaq 100 Index (NASDAQ: .NDX) entered a bull market, having risen more than 20% since 7 April. The S&P 500 is not far behind, having risen 18% since 8 April. 

This is good news for ASX investors who bought US-focused exchange-traded funds (ETFs) in the dip. Those who bought the iShares S&P 500 AUD ETF (ASX: IVV) on 8 April have already made a 12% return. On a $10,000 investment, that amounts to a $1,200 gain in just over a month. Those who invested in the Betashares Nasdaq 100 ETF (ASX: NDQ) on the same date have done even better, with the ETF returning nearly 18%. 

What changed?

Several developments surrounding tariffs and the US-China trade war have boosted sentiment this week. 

After two days of negotiations in Switzerland, trade negotiators from the US and China announced a substantial de-escalation in tariffs. Specifically, the US slashed duties on Chinese products to 30% from 145% for a 90-day period, while China reduced its levy on most goods to 10%.

This prompted Goldman Sachs to upgrade its 3-month target to 5,900. With the S&P 500 currently sitting at 5,886 points, this suggests the market will remain flat for the next 3 months.

As reported by Bloomberg, when issuing the upgrade, Goldman analysts noted:

Already-optimistic market pricing of the economic growth outlook as well as uncertainty surrounding the magnitude of impending slowdown in economic and earnings growth will likely keep a ceiling on equity multiples during the next few months.

This marks a sharp reversal from earlier forecasts. Goldman cut its S&P 500 target twice in March, citing tariff-related recession risk. 

What does this mean for investors?

Recent developments have also given investors hope that the US can avoid a recession this year. Traders now expect the Federal Reserve to cut rates just twice in 2025. Last week, the Federal Reserve kept the Federal Funds Rate (FFR) on hold at between 4.25% and 4.50%.

For the next 12 months, Goldman now expects the S&P 500 Index to reach 6,500, up from its prior forecast of 6,200.

However, UBS Global Wealth Management's Mark Haefele has taken a different view, downgrading US stocks to neutral. High uncertainty and a more balanced risk-reward potential for equities were cited to justify this downgrade.

While broker forecasts may vary, there's no doubt that investors appear much more optimistic than they were a month ago. Only time will tell what happens three months or one year from now.

The post Why did Goldman Sachs just upgrade its S&P 500 target? appeared first on The Motley Fool Australia.

Motley Fool contributor Laura Stewart has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Nasdaq 100 ETF, Goldman Sachs Group, and iShares S&P 500 ETF. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has recommended iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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