MW Goldman's stagflationary vibe sees it cut S&P 500 target again and hike recession risk

By Jamie Chisholm

Higher tariff-induced inflation and lower growth will deliver a fall in S&P 500 earnings per share

As the April 2 tariff-day looms, and the last session of the first quarter gets underway, stock-index futures are under more pressure. The S&P 500 is on course to register its worst quarter since the second three months of 2022.

And its likely to get worse, reckon Goldman Sachs.

In a new note dated Sunday, a team of Goldman equity strategists led by David Kostin cut their S&P 500 SPX forecast over the next three months from no change to a 5% fall and a target of roughly 5,300.

They are more positive longer term, and expect the S&P 500 to be 5,900 in 12 months time, a gain of 6%. But they had previously expected a 16% increase over the next year.

The reason for the dwindling optimism appears to be a burgeoning fear of stagflation at the bank, as tariffs build price pressures while also damaging economic activity.

The Goldman economics team, led by Jan Hatzius, also have a new note out, in which they have raised their expected U.S. import tariffs increases from 10 percentage points to 15, to reflect the expected arrival on Wednesday of Trump's 'reciprocal' penalties.

As the higher tariffs are likely to boost consumer prices, they have lifted their year-end 2025 annual core PCE inflation forecast by 0.5 percentage points to 3.5%.

"Reflecting both the tariff news and a decline in our Q1 [first quarter] GDP tracking estimate to just 0.2%, we have also lowered our 2025 GDP growth forecast by 0.5 pp [percentage points] to 1.0% on a Q4/Q4 basis (and by 0.4 pp to 1.5% on an annual average basis)," the economics team say.

Consequently, they place the chances of a U.S. recession over the next 12 months at 35%. "The upgrade from our previous 20% estimate reflects our lower growth baseline, the sharp recent deterioration in household and business confidence, and statements from White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies," they add.

That's obviously not a good environment for corporate profits. And so back to the Kostin team, who have slashed their S&P 500 earnings per share growth target for 2025 by more than half, from plus 7% to plus 3%. Earnings per share (EPS) growth in 2026 is reduced slightly from 7% to 6%.

About three weeks ago Goldman cut its S&P 500 EPS target for this year to $262. Now it's down to $253. And, crucially, the bank thinks the current uncertainty warrants a higher equity risk premium and lower valuation multiples for stocks. The S&P 500's price to earnings multiple has already dropped from around 21.5 at the start of the year to the current 20, but it may fall further.

"With little change to consensus EPS estimates, all of the 9% sell-off from the market peak in February has stemmed from valuation contraction. We expect a further valuation decline in the near-term, with the P/E registering 19x in 3 months and rising modestly to 19.5x in 12 months," the Kostin team say.

Given the stock markets recent volatility, there may be many investors who would settle for a further drawdown of only about 5% for the S&P 500. But should the chances of a recession increase dramatically then the sell-off has much more to go, if history is a guide.

Goldman notes that the stock barometer has typically shed about 25% from its previous peak around economic recessions.

"Based on the S&P 500 record high of 6144 in February, this magnitude of decline would suggest a further 17% drawdown to a trough level of roughly 4600," they warn.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are lower as benchmark Treasury yields BX:TMUBMUSD10Y fall on haven demand. The dollar index DXY is lower, while oil prices (CL.1) slipped and gold (GC00) is trading at a new record high above $3,100 an ounce.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              5580.94    -1.53%  -6.27%  -5.11%   6.22% 
   Nasdaq Composite                                                     17,322.99  -2.59%  -8.09%  -10.29%  5.76% 
   10-year Treasury                                                     4.202      -14.40  4.30    -37.40   -11.80 
   Gold                                                                 3152.7     4.48%   8.56%   19.45%   38.73% 
   Oil                                                                  69.73      0.82%   1.84%   -2.98%   -16.98% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

U.S. economic data due Monday include the Chicago Business Barometer for March at 9:45 a.m. Eastern. The big data-point of the week will be the March nonfarm payrolls report, released Friday.

U.S. President Donald Trump said: he 'couldn't care less' if some automakers raise prices due to tariffs; he might run for a third term; and he is considering oil sanctions on Russia.

Four of China's largest banks are planning to raise up to $71.6 billion via share sales under a finance ministry-led plan aimed at bolstering capital and beefing up lending to help boost the economy.

Shares of CK Hutchison Holdings (HK:1) fell sharply after reports that Hong Kong billionaire Li Ka-shing is considering delaying a deal to sell the company's Panama Canal ports following pressure from Beijing.

Shares of Sweden's Fortnox (SE:FNOX) are surging about 35% after the cloud-based financial services group received a 44.5 billion kronor ($4.5 billion) takeover offer from a consortium including EQT.

Elon Musk handed out $1 million checks to two voters after Wisconsin Supreme Court declined a bid to stop him.

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The chart

Gold jumped another 1% early Monday to trade at a fresh record high. But even before the latest rise the trade was looking notably 'overbought'. The chart from Jonathan Krinsky, technical strategist at BTIG, shows the gold price's monthly relative strength index, a momentum gauge, was near 82. "Prior occurrences in the last 20 years when it was 79 or higher have led to meaningful pauses or pullbacks. We think this time will be no different," says Krinsky.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   PLTR    Palantir Technologies 
   TSM     Taiwan Semiconductor Manufacturing 
   AAPL    Apple 
   MLGO    MicroAlgo 
   AMZN    Amazon.com 
   NIO     NIO 
   SMCI    Super Micro Computer 

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-Jamie Chisholm

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March 31, 2025 06:41 ET (10:41 GMT)

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