Goldman Sachs and Deutsche Bank See No End to S&P 500 Rally

Goldman Sachs on Tuesday strongly countered concerns about an earnings bubble in the S&P 500. The bank forecasts a further quarter of double-digit earnings growth beginning next week.

Separately, Deutsche Bank expressed similar confidence, restating its year-end target of 8,000 for the benchmark index.

Goldman Sachs Rejects S&P 500 Bubble Claims, Maintains Bullish Stance

An earnings bubble describes a situation where corporate profit growth becomes unsustainable. Such an imbalance typically triggers a sharp correction when reality aligns with overly optimistic expectations.

Ben Snider, Goldman's chief U.S. equity strategist, contended that the label does not apply to the current market. Speaking on Bloomberg Open Interest, Snider said a bubble implies earnings are about to pop. Goldman simply does not see that happening.

Aggregate S&P 500 earnings are currently rising over 30% year over year. Meanwhile, the median stock still shows a solid 14% gain.

Snider acknowledged that some slowdown appears probable as fiscal tailwinds diminish and energy costs increase. Nevertheless, he expects earnings to stay strong. Third-quarter GDP tracking currently indicates growth above 3%.

Regarding artificial intelligence, Snider said token consumption and compute demand should keep climbing until 2027, maintaining a key earnings driver for the market.

He noted that investor positioning is currently at its lowest since March, indicating widespread caution that could support additional gains if catalysts like declining oil prices or lower interest rates appear.

Why Deutsche Bank Is Also Bullish

Deutsche Bank's equity strategy team, headed by Binky Chadha, released a note titled "To 8,000 and Beyond?" highlighting several factors backing their upbeat outlook.

Third-quarter earnings are expected to produce about 30% year-over-year growth, matching a similarly robust second quarter. The bank also increased its 2027 earnings-per-share projection to $420, indicating growth of nearly 17%.

Historical data provides additional backing. Chadha's team noted that 21 of the last 23 mid-term election years saw positive fourth-quarter returns, with an average gain of 7%. The bank added that positioning, technical indicators, and supply-demand dynamics remain favorable.

Ultimately, both firms reach a similar conclusion. The exceptional earnings growth observed through 2026 will probably slow a bit, but neither anticipates anything approaching a collapse.

As long as companies continue to post double-digit or high-teens profit growth, supported by AI investment and a resilient overall economy, Wall Street's two most prominent bullish analysts see significant potential for the S&P 500 to rise further through year-end and beyond.