Equity Rotations & Economic Outlook: Goldman Sachs
- Despite this, the S&P 500 remains near its peak, buoyed by expectations of interest rate cuts from the Federal Reserve.
- Goldman Sachs anticipates the Federal Open Market Committee (FOMC) will lower its benchmark lending rate by 25 basis points soon, with a total reduction of 200 basis points...
- equity strategist at goldman Sachs, noted the shift in focus toward employment figures.
Goldman Sachs analysts observe that shifts in equity markets hint at anxieties surrounding U.S. economic growth. The primary_keyword, equity rotations, are driven by concerns, but the S&P 500 remains elevated, propped up by anticipation of Federal Reserve rate cuts. Goldman Sachs predicts the FOMC will cut rates by 25 basis points imminently, expecting a total of 200 basis points in cuts by early 2026. David Kostin highlights employment figures taking center stage. As mid-July, disappointing labor reports have caused cyclical equities to lag. This re-evaluation of economic growth could have historically triggered a market downturn,but for now,the S&P 500 is holding steady. While past patterns might potentially be unreliable, investors should keep an eye on the trajectory. News Directory 3 can keep you informed. Discover what’s next for the markets and the economic outlook.
Equity Rotations Signal Economic Growth Concerns: Goldman Sachs
Updated May 27, 2025
Recent equity rotations suggest a weakening U.S. economic outlook, according to Goldman Sachs. Despite this, the S&P 500 remains near its peak, buoyed by expectations of interest rate cuts from the Federal Reserve.
Goldman Sachs anticipates the Federal Open Market Committee (FOMC) will lower its benchmark lending rate by 25 basis points soon, with a total reduction of 200 basis points expected by the first quarter of 2026. This projection is slightly more conservative than the market’s anticipated 260 basis points in cuts. The firm maintains its year-end S&P 500 price target at 5,600, with six-month and 12-month targets set at 5,700 and 6,000, respectively.
david Kostin, chief U.S. equity strategist at goldman Sachs, noted the shift in focus toward employment figures. “With annualized inflation back near 2%, the focus of both investors and the FOMC has shifted towards the employment side of the Fed’s dual mandate,” Kostin said. He added that disappointing labor market reports have caused cyclical equities to underperform defensive stocks by 9% as mid-July and 3% since September.
This rotation suggests the market is pricing in real economic growth of about 3%, aligning with Goldman economists’ GDP estimates of 2.5% for the third quarter and 2.3% for 2025.
Historically, such a repricing of economic growth would have led to a 7% decline in the S&P 500 and a 6% drop in the equal-weight S&P 500 since mid-July. however, the S&P 500 has only decreased by 1%, while the equal-weight S&P 500 has risen by 1%.
Kostin pointed out that in the five rate-cutting cycles since 1984, the economy did not quickly enter a recession. The S&P 500 typically saw gains of 6% over three months,9% over six months,and 17% over 12 months following the initial Fed cut.
However, kostin cautioned that ancient patterns might not accurately predict future equity performance, as the market has already factored in potential easing by the Federal Reserve. In addition to the expected initial cut, Goldman economists project two more quarter-point cuts by year-end and four additional cuts in 2025.
What’s next
Investors will closely watch upcoming economic data and Federal Reserve actions to gauge the trajectory of interest rates and their impact on the S&P 500 and overall market stability.