David Kostin, Chief U.S. Equity Strategist at Goldman Sachs, stated that the Federal Reserve's decision to initiate monetary policy easing is expected to further extend the upward cycle of the U.S. stock market.
In the latest "U.S. Weekly Kickstart" report, Kostin pointed out that even if U.S. economic growth slows, rate cuts will provide a dual boost to stock valuations and corporate earnings prospects.
"Further gains in the stock market are consistent with historical trends before and after Fed rate-cutting cycles," he wrote in the September 19 report.
The strategist forecasts that the S&P 500 will reach 6,200 points by the end of 2025, implying modest upside from current levels. If inflation continues to decline and the Fed maintains a dovish stance, the index could see even higher gains. He emphasized that declining bond yields would reduce the "equity risk premium" (the excess return compensation of stocks relative to bonds), making stocks more attractive compared to fixed-income assets.
From a sector perspective, Kostin believes that interest rate-sensitive sectors will be the biggest beneficiaries, including real estate, finance, and some technology companies related to capital expenditures. He noted that as investors shift back to cyclical growth sectors, defensive areas such as healthcare and consumer staples may lag.
However, Kostin also warned that the stock market rally is not without risks. On one hand, sticky wages (referring to wages that are difficult to decrease) and input costs continue to pressure corporate profit margins. On the other hand, political uncertainty ahead of the 2026 midterm elections could also dampen market sentiment.
"Against a backdrop of relatively stable long-term interest rates, earnings will continue to be the core driver of future stock market gains," he said.
Goldman Sachs' baseline scenario assumes that the Fed will implement two more 25-basis-point rate cuts by early 2026—a move that would help stabilize financial conditions without triggering a significant resurgence in inflation. Kostin noted that the Fed's credibility in "balancing economic growth and price stability" will be key to maintaining investor confidence.
Goldman Sachs expects the earnings per share (EPS) growth of S&P 500 constituents to reach 7% in both 2025 and 2026.
"Although current stock valuations are high compared to historical levels, they are close to reasonable value when considering the potential macroeconomic environment and corporate fundamentals," Kostin said. "The Fed's easing policies and the anticipated acceleration in economic growth in 2026 will support maintaining current valuation levels, and corporate earnings growth will become the core driver of sustained gains in U.S. stocks."
