With Wall Street indices hitting fresh records and the Fed embracing a dovish pivot with further rate cuts on the table, Goldman Sachs wasted no time upgrading its S&P 500 target—but it’s the bank's unusual stock picks that stand out.
In a note shared Friday, the bank’s equity analyst David Kostin raised its 12-month target for the S&P 500 to 7,200, up from a previous forecast of 6,800, as strong earnings, light positioning and a favorable rate outlook create a recipe for continued gains. The index has already gained 14% year-to-date, with earnings growth being the primary driver.
Goldman projects two 25-basis point cuts by the end of 2025, with another two cuts in 2026, in line with current market pricing.
“With our baseline economic and Fed forecasts largely reflected in market pricing, we expect earnings will continue to be the primary driver of equity prices from here,” Kostin said.
What Happens Historically When Rates Fall?
Goldman's optimism is rooted in history. Over the last 40 years, the S&P 500 has delivered a median 12-month return of 15% following rate cuts—but only when economic growth continued.
Of the eight times the Fed resumed easing after a pause of six months or more, four instances led to recession. In the other four, when the economy kept expanding, equities rallied. The median 6-month return was 8%, with 12-month gains averaging 15%.
These Stocks Benefit The Most From Lower Rates
Rather than piling into the usual rate-sensitive sectors like real estate or utilities, Goldman is betting on companies with high levels of floating rate debt. Why? Because they get a direct earnings boost when borrowing costs fall.
The firm highlights that its custom basket of such companies has already rallied 13% since early August—far outpacing the 3% gain for the equal-weighted S&P 500 over the same period.
A key tailwind is the increase in interest deductibility included in the recently passed “One Big Beautiful Bill” fiscal package, which further supports margins and earnings for debt-heavy names.
Goldman estimates that every 100 basis point drop in borrowing costs boosts earnings for these firms by more than 5%.
Here are the names Goldman expects to outperform as rates fall, along with their potential upside:
- DexCom Inc. (NASDAQ:DXCM): +54.2%
- Dollar Tree Stores Inc. (NASDAQ:DLTR): +36.5%
- Microchip Technology Inc. (NASDAQ:MCHP): +35.1%
- Walt Disney Co. (NYSE:DIS): +33.6%
- Diamondback Energy Inc. (NASDAQ:FANG): +29.6%
- Boston Scientific Corp. (NYSE:BSX): +28.8%
- Axon Enterprise Inc. (NASDAQ:AXON): +21.4%
- Synopsys Inc. (NASDAQ:SNPS): +21.1%
- Fortinet Inc. (NASDAQ:FTNT): +19.9%
- Lululemon Athletica Inc. (NASDAQ:LULU): +17.9%
- Mosaic Co. (NYSE:MOS): +17.7%
- Arista Networks Inc. (NYSE:ANET): +17.0%
- GE Vernova (NYSE:GEV): +14.6%
Many of these names sit outside the traditional interest-rate playbook, highlighting Goldman's unconventional—but data-backed—approach in this cycle.
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