Goldman’s view supports staying invested in US equities, but it points to rotation rather than broad gains. The recent slide in the momentum factor suggests that rotation may already be under way, with crowded AI and mega-cap trades most exposed. Oil is a key swing factor: elevated crude prices tied to the Iran war are part of what restrains growth in Goldman’s base case, so any further energy shock would delay the consumer recovery it is banking on for 2027. Rate-sensitive and lower-income consumer names stand to benefit most if inflation and yields ease. Third-quarter earnings over the coming weeks will test whether profit forecasts hold up.
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Goldman still sees room for US stocks to climb, but with the index propped up by a narrow group of winners, it is telling investors to look for the next leaders rather than chase the last ones.
Summary:
- Goldman Sachs strategists led by Ben Snider expect US stocks to keep rising on earnings growth, with slower growth tempering rather than ending the rally
- The S&P 500 was about 2% below its record, while the median stock was around 15% below its high; market breadth is near its narrowest since the dot-com era
- Goldman’s momentum factor fell 8% in one week, highlighting the risk to crowded trades
- Goldman forecasts S&P 500 EPS of $375 in 2026 and $415 in 2027, with its 2028 estimate about 7% below consensus
- AI capex accounts for about half of S&P 500 earnings growth, a boost expected to fade
- Goldman favours lagging consumer stocks, particularly those tied to lower-income households and experiences, on expected real income gains in 2027
Goldman Sachs expects the US stock market rally to continue on the back of rising corporate profits, but its equity strategists warn that unusually narrow market leadership leaves investors who chase recent winners exposed to a sharp reversal.
In a report dated 16 October, a team led by strategist Ben Snider argued that slowing economic and earnings growth should moderate equity returns rather than bring the advance to an end. Their preferred opportunity lies in consumer stocks that have lagged the market, which they expect to benefit from improving household purchasing power next year.
The concern sits beneath the headline index. When the report was written, the S&P 500 was only about 2% below its record high, yet the typical stock in the index was around 15% below its own peak. Goldman’s measure of market breadth was close to its narrowest since the dot-com era. That gap is a risk for momentum strategies, which favour recent outperformers: either lagging stocks catch up, or the leaders fall back toward the pack, and both outcomes would hurt trades built on the previous leadership. Goldman’s momentum factor dropped 8% in a single week, showing how quickly those positions can unwind.
Earnings remain the main support. Goldman forecasts S&P 500 earnings per share of $375 in 2026 and $415 in 2027. Stripping out one-off accounting effects, it puts underlying growth at around 29% this year and 18% next. But the bank sees less room for the large upward revisions that have powered stocks, and its 2028 estimate of $460 a share sits roughly 7% below consensus.
Artificial intelligence is central to that outlook. Goldman estimates AI capital spending accounts for about half of S&P 500 earnings growth, a contribution it expects to fade as spending growth slows and depreciation costs rise. That view sits alongside other recent signals on the AI buildout, from forecasts showing memory costs swallowing a growing share of hyperscaler budgets to reports of data centre projects stalling on grid power constraints.
Higher interest rates and oil prices are also expected to weigh on activity. Goldman’s consumer thesis rests on those pressures easing in 2027, with lower inflation, energy prices and rates lifting real incomes, particularly for lower-income households. It forecasts real income growth for the bottom fifth of earners accelerating from 0.4% in 2026 to 1.8% in 2027. Hedge fund exposure to consumer discretionary stocks is near multiyear lows, which could amplify any recovery, though Goldman is selective, favouring lower-income consumer names and experience-related businesses rather than the sector as a whole.
Historically, periods of positive but slowing growth have still delivered gains, driven by earnings rather than rising valuations, and have favoured companies with durable growth and lower volatility. The risk is a deeper slowdown. With cyclical stocks already losing ground to defensives, the path for the market’s recent leaders looks harder from here.
This article was written by Eamonn Sheridan at investinglive.com.