S&P 500 Could Soar 12% By Year-End—But Only If Recession Is Avoided, Goldman Sachs Says

After slipping into a technical correction this month, the S&P 500 may be on the cusp of a powerful rebound that could drive it to new all-time highs — provided the U.S. economy avoids a recession, as historical patterns suggest.

In a note shared Friday titled “Where To Invest Now”, Goldman Sachs chief U.S. equity strategist David J. Kostin said the S&P 500 index — as tracked by the SPDR S&P 500 ETF Trust SPY — could climb to 6,200 points by the end of 2025.

That’s a 12% increase from current levels of around 5,675, provided the U.S. economy manages to sidestep a downturn.

The Big ‘If’

“If the economy avoids a recession, 12-month forward return averages 12%,” Kostin said, showing that historical data supports this conditional optimism.

Looking back to 1950, history shows that when the S&P 500 falls 10% and the U.S. economy sidesteps a recession, the index typically rebounds with a 12% gain over the following year.

If the window shortens to six months, the index typically returns about 8%.

Economists at Goldman Sachs and elsewhere are forecasting a gradual deceleration in growth. GDP is projected to slow from 2.8% in 2024 to between 2.0% and 2.2% in 2025, according to Goldman estimates.

The Federal Reserve Bank of Atlanta’s GDPNow model is signaling even more fragility, forecasting a contraction of 1.8% for the first quarter of 2025 as of March 18, albeit a slight better revision from previous estimates.

Adding to investor anxiety is the spike in policy uncertainty.

The U.S. Economic Policy Uncertainty Index has surged to one of its highest levels in 30 years, while Goldman Sachs’ economics team expects the effective U.S. tariff rate to jump by 10 percentage points. That would raise the average tariff burden to 13%—the steepest since 1938.

Market Rotation: The Fall of the Magnificent 7?

2025 has started on a shaky note for megacap tech names.

The so-called Magnificent 7 — Microsoft Corp. MSFT, Apple Inc. AAPL, NVIDIA Corp. NVDA, Alphabet Inc. GOOG GOOGL, Amazon Inc. AMZN, Meta Platforms Inc. META and Tesla, Inc. TSLA — have collectively delivered a year-to-date return of negative 12%.

That underperformance contrasts with the rest of the S&P 500: the remaining 493 companies have gained 1% in the same period, suggesting a rotation out of megacaps into broader market exposure.

“Tesla has declined by 50%, more than twice the fall of the other Mag 7 stocks,” Kostin said.

“Market share of top 7 stocks in S&P 500 is now 31%, down from nearly 35% before the correction.”

Spending Like It’s 2023? Capex Boom Continues

Yet, big tech isn’t tightening the purse strings. Goldman Sachs forecasts that capital expenditures for the Magnificent 7 will jump 32% this year to $333 billion — twice the amount they spent annually before the launch of OpenAI’s ChatGPT in late 2022.

Leading the investment surge are Amazon.com and Alphabet, expected to spend $103 billion and $75 billion respectively in 2025. Nvidia will more than double its capex to $45 billion, while Meta Platforms plans a 36% increase to $61 billion.

This aggressive reinvestment signals long-term confidence in artificial intelligence and cloud infrastructure.

Despite recent stock pressure, these companies are aggressively ramping up spending — a signal they’re betting big on long-term growth and the durability of their business models.

S&P 500 Earnings Poised To Grow 7% This Year

Goldman maintains a constructive stance on the earnings trend. The firm projects S&P 500 aggregate earnings per share will rise 7% to $262 in 2025. That’s slightly below the consensus estimate of $270, which assumes 10% growth.

Goldman’s valuation model implies a year-end price-to-earnings multiple of 20.6, supported by expectations that nominal 10-year Treasury yields will stay broadly flat around 4.35%.

One of the biggest tailwinds for equities right now is the investor allocation itself. According to Goldman, investors currently have more than 50% of their financial assets tied up in stocks—an all-time high.

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