The S&P500 Index (SP: INX) closed 0.082% higher on Friday at 5,667.56 points as the US market continued its recovery.
Based on closing daily values, the S&P500 officially entered a market correction on 13 March.
A correction occurs when a major index falls 10% from its most recent peak.
The S&P500 fell sharply between mid-February and mid-March as US President Donald Trump rolled out new tariffs on trading partners.
Market sentiment crumbled amid fears that the tariffs may spark a global trade war and send the US economy into recession.
Trump fuelled that fear when a TV journalist asked him if he was expecting a recession this year.
In response, he admitted there could be a "period of transition" after the tariffs were put in place.
It seems the S&P500 has now commenced a rebound, rising 2.64% since its trough on 13 March.
The US Federal Reserve's decision to leave interest rates on hold helped the market settle down last week.
But the upheaval has prompted one of the world's most high-profile brokers to lower its expectations for S&P500 returns this year.
Goldman Sachs downgrades S&P500 returns forecast
Goldman Sachs has revised its forecast for S&P500 returns in 2025.
The previous forecast, released in November, was for the S&P500 to rise to 6,500 points by the end of 2025.
At the time, David Kostin, chief US equity strategist at Goldman Sachs Research, said he was expecting solid economic expansion and earnings growth for the S&P500. But he also said there were risks.
He noted that the S&P500's price-to-earnings (P/E) had increased by an extraordinary 25% to more than 21x over the past two years.
Kostin commented:
An equity market that is already pricing an optimistic macro backdrop and carrying high valuations creates risks heading into 2025.
He said higher P/E multiples could result in lower near-term returns and enhance the effects of any downturn.
What's the new outlook?
Kostin has now shaved down his year-end prediction for the S&P500 from 6,500 points to 6,200 points.
As reported by Yahoo Finance, Kostin wrote in a note:
We lower our 2025 year-end S&P 500 index target to 6200 (from 6500) to reflect a 4% reduction in our modeled fair-value forward P/E multiple (20.6x from 21.5x).
However, Kostin expects a solid rebound for the S&P500 from here.
He said:
Our new index target suggests an 11% price gain during the balance of the year, similar to our return estimate at the start of the year but from a lower starting point.
A contributor to Kostin's downgraded year-end prediction for the S&P500 is expectations of weaker economic growth.
In a separate note, Goldman's economics team cut its US GDP forecast from 2.4% to 1.7% for 2025.
Economics team leader Jan Hatzius said:
The reason for the downgrade is that our trade policy assumptions have become considerably more adverse.
Kostin noted the GDP downgrade and said this had led him to reduce his estimate for S&P500 earnings growth from 9% to 7% this year.
Kostin wrote:
Our revised estimates reflect the recently reduced GDP growth forecast of our US Economics team, a higher assumed tariff rate, and higher level of uncertainty that is typically associated with a greater equity risk premium.
Weaker economic activity usually means weaker corporate earnings growth.
Times are changing…
US shares delivered a second extraordinary year of returns last year.
The S&P500 provided a total gross annual return (including dividends) of 25.02%, according to S&P Global data.
The falling Australian dollar meant Aussie investors received a bumped-up total return of 37.78% from S&P500 investments.
What a year for Aussie investors holding S&P500 exchange-traded funds (ETFs) like the iShares Core S&P 500 AUD ETF (ASX: IVV)!
ETF provider iShares says the ASX IVV delivered a total return of 24.98% in 2024, tracking very closely to the index's return of 25.02%.
US shares outperformed the Aussie benchmark S&P/ASX 200 Index (ASX: XJO) by 3:1 last year.
The ASX 200 delivered investors a healthy but inferior total gross return of 11.44%.
