A recent decline of nearly 10% in the S&P 500 has led Wall Street analysts to reassess their optimistic projections for the coming year. Prominent among them is David Kostin, Goldman Sachs' chief U.S. equity strategist, who became the first major figure to lower his year-end target for the S&P 500 following this downturn. Kostin revised his forecast from 6,500 to 6,200, reflecting adjustments due to economic concerns and policy uncertainties. This recalibration comes as fears over the U.S. economy's health and tariff-related anxieties have unsettled investor confidence.

David Kostin and his team at Goldman Sachs cited several factors behind their decision to reduce the projected S&P 500 index target. They pointed out a decrease in the modeled fair-value forward P/E multiple, moving from 21.5x to 20.6x, which accounts for a 4% reduction. This adjustment suggests an 11% price increase for the remainder of the year, albeit starting from a lower baseline. The revision also reflects Goldman's updated GDP forecast for 2025, which was lowered from 2.2% to 1.7%, influenced by tariff impacts and political ambiguities.

Kostin emphasized that slower GDP growth forecasts necessitated a downward revision in S&P 500 earnings growth estimates, reducing them from 9% to 7%. He attributed these changes to reduced GDP growth expectations, higher assumed tariff rates, and increased uncertainty typically linked with elevated equity risk premiums. Weaker economic activity often correlates with diminished corporate earnings growth, further underpinning the need for adjusted financial predictions.

In his analysis, Kostin highlighted potential catalysts that could enhance the economic growth outlook, such as robust economic data or a more lenient tariff policy. A recent instance of favorable economic data emerged on Wednesday when softer-than-expected inflation readings boosted major stock indexes at market opening. Although Kostin initiated the trend of lowering year-end targets, he isn't alone in cautioning about altered prospects for U.S. equities compared to previous forecasts.

Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, echoed similar sentiments, noting that the U.S. equity market might face a volatile yet upward trajectory until year-end. She acknowledged the possibility of absorbing a 5-10% drawdown within their initial projection of 6,600. Such insights reflect a broader consensus among strategists that economic and policy dynamics will significantly influence stock performance in the upcoming months.