The S&P 500 is up almost 10% this year. Goldman thinks it's still cheap. Stocks have rallied hard, while profits have rallied harder. So the market has actually gotten less expensive on the way up.
That's the reason behind Goldman's new 8,000 target.
Goldman strategist Ben Snider lifted his 2026 forecast for S&P 500 EPS - profit per share of stock - to $340. That works out to 24% earnings growth in a single year. He sees another 13% gain in 2027, taking earnings to $385 a share.
The first-quarter numbers backed him up. S&P 500 companies posted profit growth of more than 28% year over year, the strongest quarter since the end of 2021.
About 84% of companies beat analyst estimates per FactSet data, well above the five-year average of 78%. That's the kind of beat rate that lifts forward forecasts across the board.
"Earnings growth has powered the entire S&P 500 return so far this year," Snider wrote. He expects the trend to keep going.
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Here's the strange part of this rally. The S&P 500 has climbed about 40% over the past two years. But the price-to-earnings ratio - what investors pay for each $1 of profit - has actually dropped.
Why? Earnings forecasts went up faster than the index did. In Goldman's words, the entire 40% rise in stocks over two years has been backed by real profit growth, not just hope.
Half of this year's earnings boost is coming from one place: AI infrastructure spending. The hyperscalers and the firms building power for data centers are still the names Snider is telling clients to own. That includes the ones that recently borrowed $250 billion for AI to fund the build.
Microsoft alone has been the swing vote on the index this year. That gives a sense of how concentrated the rally still is.
Ed Yardeni of Yardeni Research has a name for the current market. He calls it "FEMO" - fabulous earnings momentum.
Goldman's base case assumes the P/E multiple stays flat from here. The tailwind from lower bond yields gets offset by slower economic growth and ongoing AI doubts.
If geopolitical risk eases, especially around Iran, Goldman says the index could overshoot 8,000.
The profit story is the one running this market.
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