Photo: Courtesy Rafael Saldaña on Flickr

Goldman Sachs Group Inc. (GS) strategists have lowered their S&P 500 forecast for this year. They have cut their year-end target for the S&P 500 benchmark index to 4,900 points, down from 5,100 points previously. 

According to Goldman, the 4,900 target implies full-year returns of just 4% for U.S. equities, which is “modestly below the historical average.”

Goldman’s strategists still expect S&P 500 earnings per share to grow by 8% year-on-year to $226. The investment bank said inflation surprising to the upside means valuations will adjust accordingly. 

Goldman's economists are now expecting the Fed to raise rates by 25 basis points at each of the seven remaining meetings this year, rather than the five increases they anticipated earlier. 

They also mentioned that if inflation remains high and prompts more Fed hikes than currently anticipated, the S&P 500 would decline by 12% to 3,900. It may even dip down to 3,600 if the tightening tips the economy into recession. 

On the other hand, if inflation recedes faster and fewer hikes are needed, the economists say the benchmark will rally to 5,500 index points.