In a best-case scenario, US equities could rise another 16% through year-end.

That’s according to Goldman’s David Kostin, who raised his S&P target in light of “milder than average negative EPS revisions” and a higher modeled multiple.

Kostin now sees the benchmark sitting near 5600 at year-end in his base case. The bank’s old target was 5200. Long story short, Kostin was (past tense) assuming a year-end forward multiple of 19.5x on a lower bottom-up consensus 2025 EPS estimate. Although he still expects some multiple compression from current levels, the index should nevertheless trade above 20x at year-end, he said, and Goldman now expects company analysts to revise their collective 2025 EPS estimate of $279 by a mere 2%. That gets you to 5578 SPX.

“Historically, starting [in] June of the previous year, consensus estimates have been cut by an average of 7% [but] we expect revisions… will continue to be milder-than-average through year-end given the upward revisions to mega-cap tech earnings that have already taken place this year,” Kostin wrote.

Needless to say, the cap-weighted index multiple trades at a massive premium (30%) to the equal-weighted multiple. That gap will be 36% by year-end Kostin reckons, assuming earnings growth expectations for the mega-caps “gradually converge towards the typical stock.”

There were no changes to Goldman’s 2024 and 2025 aggregate EPS estimates, which remain $241 and $256, respectively. Kostin still suspects consensus is too optimistic on margins.

As alluded to above (and as shown in the figures), Kostin has four alternative scenarios for US equities, the most bullish of which is defined by “continued mega-cap exceptionalism.” In that scenario, the S&P would end the year at 6300 and would trade at 23x, a 45% premium to the equal-weighted index.

The other bull case is a “catch-up” scenario that finds the index rising around 9% to 5900 at year-end on multiple expansion for the equal-weighted gauge, which would trade to 18x, the pre-pandemic high, shrinking the premium for the cap-weighted index.

In the event growth estimates for the market leadership prove too rosy, stocks could succumb to a “catch-down.” In that scenario, the S&P ends the year at 4700. “Strong upward revisions to earnings creates a higher bar for [the mega-caps],” Kostin remarked, “particularly as investors have started to focus more on seeing revenues from investments in AI.

If investors start to worry about a recession, stocks could correct to 4800. “Although our economists still forecast above consensus economic growth, further weak growth data could reignite anxiety over a slowdown and push the P/E multiple down to 18x,” Kostin said, adding that “downside would be limited as the Fed would have ample room to cut interest rates if economic data deteriorate meaningfully.”