24/7 Wall St. Insights

• Goldman Sachs has forecast that the S&P 500 could rise 10% by the end of next year.
• What could fuel that rise, and what could derail it?
• Also: Dividend legends to hold forever.

Goldman Sachs has forecast that the S&P 500 could hit 6,500 by the end of next year. It is below 5,900 today, so the increase would be 10%. That seems modest. However, it indicates that one of the greatest bull markets in history would continue its ascent.

The S&P 500 is up 25% this year and almost 50% over the past two years. The combined market cap of all its components is just shy of $50 trillion. Nvidia, Apple, Microsoft, Amazon, and Alphabet have over $14 trillion of that.

What could derail the rise, and what could fuel it? First and foremost are earnings. This is especially true of the five mega caps. Poor earnings from any of them could take the market down. An erosion of earnings overall would only be likely in the face of a recession or a geopolitical disaster. Strengthening earnings could push the market higher.

Most economists believe a recession is unlikely in the short term. However, that could change with the new administration’s policies. It is only a guess, but high tariffs on foreign goods could trigger inflation. Inflation could hurt the purchasing power of both individuals and businesses. For the time being, that is nothing more than a theory.

A geopolitical disaster could undermine the market quickly, perhaps in a single day. An increase in hostilities in the Middle East could cut oil supply. It could also engage U.S. military forces. Additionally, Russia continues to say that the United States is escalating the war in Ukraine. The primary Russian threat is the use of tactical nuclear devices. Even a credible threat of Russian aggression at that level could tank the market.

The S&P 500 might hit 6,500 by the end of 2025, but that is very far away.

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