Goldman Sachs Lowers Earnings Growth Expectations Amid Market Shifts

David Kostin, the Chief U.S. Equity Strategist at Goldman Sachs, has recently adjusted his earnings growth forecast, indicating a less optimistic outlook for the economy. During his appearance on CNBC’s ‘Squawk on the Street’, Kostin shared insights into current market trends and expectations.

What Changed: Goldman Sachs initially anticipated an earnings growth rate of 11% for 2025. However, this estimate has been revised down to 9%. Despite this decrease for 2025, Kostin has kept the 2026 growth forecast steady at 7%. He affirmed that the year-end target for the S&P 500 stands at 6500, indicating a potential gain of 11% from current levels.

Kostin pointed out that investors are transitioning from a phase of “excitement,” characterized by cyclicals, to a period of “boredom,” favoring defensive stocks. This shift is believed to be influenced by ongoing tariff uncertainties. Preferred investment sectors identified by Kostin include healthcare and consumer staples, which tend to show more stability during uncertain times. He highlighted Agilent Technologies (NYSE:A) and Thermo Fisher (NYSE:TMO) as prominent options for investment.

Moreover, he remarked on the evolving focus within the technology sector. There has been a noticeable shift from investing heavily in AI infrastructure and hyperscalers to software enterprises that utilize AI to enhance revenue streams, such as MongoDB (NYSE:MDB).

Kostin emphasized that the uncertainty around tariffs complicates earnings predictions, projecting that potential tariff increases could lower earnings growth by 1-2% for every 5% rise in tariffs.

Why This Matters: This change in investment strategy is significant, especially when considering that many institutional investors were optimistic about the technology and finance sectors just a few months ago. Now, there appears to be a pullback from the healthcare industry, which Kostin now suggests as a favorable area for investment. Interestingly, even Berkshire Hathaway, led by renowned investor Warren Buffet, has reduced its stake in the healthcare provider DaVita Inc. (NYSE:DVA), decreasing its ownership to 45%.

These trends and Kostin’s updated forecast underscore the uncertainties pervading the current economic landscape while also revealing potential openings in defensive sectors and AI-powered businesses. Nevertheless, Kostin notes that declining bond yields may mitigate some tariff-related repercussions, potentially benefiting the economy overall. He concludes that GDP growth remains the primary driver of earnings, while interest rates and inflation are secondary factors.

The S&P 500 index saw an increase of 1.12%, closing at 5,842.63 on Wednesday, following President Donald Trump's decision to delay auto tariffs on Canada and Mexico for an additional month.

Goldman, Earnings, Market