Goldman Sachs: Earnings Continue to Underpin US Equities
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Goldman Sachs anticipates a bumpy but ultimately upward trajectory for US equities, maintaining its year-end S&P 500 target of 8,000, which represents approximately 8% upside from current levels. The firm asserts that this price appreciation will be driven by earnings growth rather than valuation expansion. Goldman forecasts S&P 500 EPS growth of 24% in 2026 and 13% in 2027. Year-to-date returns align closely with these earnings revisions, with the broader index up 8% and AI infrastructure stocks surging 34%.
While record equity supply in 2026 has raised concerns, Goldman dismisses the notion that it will derail the bull market. IPO volume remains near historical 25-year averages rather than at speculative extremes. The projected $700 billion in corporate equity issuance constitutes a mere 1% of Russell 3000 market capitalization. Furthermore, robust demand, highlighted by an estimated $1 trillion in share buybacks alongside mergers, international investment, and retail inflows, should easily absorb this supply. However, the supply-demand balance may grow more challenging in 2027 as lock-up expirations arrive.
Recent market volatility stems from narrow market breadth, elevated trading leverage via leveraged ETFs, and macroeconomic anxieties rather than fundamental earnings deterioration. To navigate this environment, Goldman recommends concentrating on earnings durability by holding AI infrastructure leaders while simultaneously maintaining positions in profitable stocks with low correlation to the prevailing AI trade. Key risks include AI return uncertainty, Strait of Hormuz disruptions, and a hawkish Fed pivot.
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