Goldman Sachs remains optimistic about the U.S. stock market's potential for further gains, but cautions investors against blindly chasing the rally's biggest winners. Strategist Ben Snider and his team note that while slowing economic and earnings growth may temper returns, corporate profits still provide support for the market's upward trajectory.
As of Goldman's October 16 report, the S&P 500 was just 2% below its record high, yet the median stock in the index lagged about 15% behind its own peak. This disparity highlights a narrowing market breadth, with Goldman's measure near its tightest level since the dot-com bubble. The bank warns that momentum investors could face risks if lagging stocks catch up or current leaders decline, potentially hurting crowded trades.
Despite these concerns, fundamentals remain strong. Goldman forecasts S&P 500 earnings per share of $375 in 2026 and $415 in 2027, reflecting reported growth of 36% and 11%, respectively. AI capital spending currently drives roughly half of this earnings growth, though its impact may wane as spending slows and depreciation costs rise.
Goldman identifies opportunities in consumer-facing laggards, particularly if lower inflation, energy costs, and interest rates boost household purchasing power in 2027. The bank expects real income growth for the lowest-income households to accelerate to 1.8% in 2027 from 0.4% in 2026. Investors should monitor market breadth, earnings revisions, consumer spending, AI capex growth, and shifts in market leadership to navigate the bull market's next phase.