The note offers support for investors weighing whether to cut equity exposure after last week’s tech selloff, arguing that slowing earnings growth alone has rarely ended a bull market. The key risk is the exception Goldman itself identifies: cycles cut short by external shocks, including aggressive rate hikes in 2022. With the Federal Reserve on a hiking path, that is the scenario traders will watch most closely. A more hawkish rate outlook would challenge the stay-invested case more directly than slower profit growth would. In sector terms, the note favors large technology platforms with AI-driven advertising tools and pricing power over traditional media agencies and smaller platforms.
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Goldman Sachs expects US earnings growth to slow sharply as the AI spending boost fades, but argues that history punishes investors who try to sell at the top.
Summary:
- Goldman Sachs Asset Management expects S&P 500 earnings per share growth to slow from 36% in 2026 to 11% in both 2027 and 2028, as the boost from AI capital spending moderates
- In past bull markets, roughly 40% to 60% of total returns came after earnings growth peaked, unless external shocks ended the cycle early
- Trade tensions in 2018 and aggressive rate hikes in 2022 are cited as examples of cycles cut short, with only 8% and 10% returns after the peak
- Goldman recommends staying invested and managing risk through diversification rather than trying to time the top
- On Meta, the bank points to strong results, record engagement and fast adoption of its Muse AI agent, with commerce emerging as a key use case
- It identifies AI-driven measurable advertising, scale and pricing power, and tight cost control as drivers of durable growth
Goldman Sachs Asset Management has urged investors not to try to time the top of the US equity market. It argues that historically a large share of bull market gains has come after earnings growth peaks, even as it forecasts a sharp slowdown in S&P 500 profit growth.
In a research note, the asset manager said it expects S&P 500 earnings per share growth to slow from 36% this year to 11% in both 2027 and 2028, as the lift to earnings from AI-related capital spending fades.
That slowdown, Goldman said, is not in itself a reason to exit equities. Across previous bull markets, roughly 40% to 60% of the total return came after earnings growth had peaked, according to analysis of Bloomberg data as of October 30. In the 1994 to 2000 cycle, the S&P 500 returned 112% before the earnings peak and a further 166% after it. The 2009 to 2015 bull market delivered 155% before the peak and 105% after, while the 2002 to 2007 run produced 75% and 46% respectively.
The exceptions came when outside forces ended the cycle early. The 2016 to 2018 bull market added just 8% after peak earnings growth as trade tensions escalated. The 2020 to 2022 cycle gained only 10% after its peak as aggressive interest rate hikes took hold. Goldman said investors risk missing significant gains by trying to call the top and recommended staying invested while reducing risk through diversification.
The bank also pointed to steady demand across digital platforms. It highlighted Meta’s strong results, which it said were supported by record user engagement and rapid uptake of the company’s new personal AI agent, Muse. Goldman said commerce is emerging as a key use case, opening potential revenue streams across transactions, subscriptions and business agents. High inference costs have delayed a global rollout, though Meta expects efficiency gains as it optimizes its models and infrastructure.
Goldman identified three drivers of durable growth. The first is the shift of advertising budgets toward platforms that can prove results and automate campaigns with AI, which favors leading technology firms and pressures traditional agencies. The second is scale and pricing power, with market leaders so far passing on higher costs without a significant hit to demand. The third is cost discipline, as media and consumer companies cut costs to fund AI investment while protecting margins.
The case for staying invested now rests on whether today’s environment resembles the long cycles of the 1990s and 2010s or the shorter ones ended by policy shocks.
This article was written by Eamonn Sheridan at investinglive.com.