Shifting trade policy creates significant uncertainty around company earnings forecasts. Kostin’s team maintained its projection for the growth in S&P 500 stocks’ earnings-per-share at 7% in 2025 and 7% the following year.
“Recent inflation data and corporate surveys indicate less tariff pass-through so far than we expected,” Kostin writes. But he adds that the effects of tariffs may take time to show up, and large companies appear to have some spare inventory in anticipation of higher tariff rates.
For example, the median S&P 500 company in a goods-related industry entered the second quarter of 2025 with above-average days of inventory totalling roughly three months.
“Recent company commentary shows S&P 500 firms plan to use a combination of cost savings, supplier adjustments, and pricing to offset the impact of tariffs,” Kostin writes.
How likely is a downturn in US stocks?
The S&P 500’s 25% rally since April was one of the sharpest climbs outside of a recession in 20 years. But “the next few months for the equity market will look very different from the last,” Kostin writes.
Although the S&P 500 has reached record highs, the median stock within the index is more than 10% below its 52-week high. This has lowered market breadth—a measure of how widely a market’s performance is reflected by its constituents—to its lowest level since 2023, according to Goldman Sachs Research’s market breadth indicator.
In the past, sharp declines in market breadth have often signaled below-average returns and larger-than-average drawdowns ahead.
“Extremely narrow breadth makes it likely that the next few months will be characterized by either a ‘catch down’ by the recent market leaders or a ‘catch up’ by recent laggards,” Kostin writes.
Source: goldmansachs.com
