Goldman Sachs Economists Discuss 2026 Economic and Market Outlook

2025 Economic and Market Performance

• 🚀 The US stock market had another exceptional year in 2025, with strong earnings growth, including 12% for S&P 500 companies and 10% for the median S&P stock.
• 💡 Despite concerns about market concentration, the broader US equity market (S&P 490/493) also performed well, returning approximately 15% annually over the past three years.
• ⚠️ A recent CPI report showed softer-than-expected inflation, though some data points like shelter costs were noted as potentially understated.

AI's Impact on Growth and Productivity

• 📈 Goldman Sachs forecasts 2.6% real GDP growth for 2026, with accelerating productivity growth estimated at 2% over the last five years, potentially increasing further with AI.
• 🚫 Despite significant investment, the direct contribution of AI build-out to measured US GDP growth in 2025 was estimated to be close to zero, due to imports and how semiconductors are treated as intermediate inputs.
• 🧠 While AI is expected to boost productivity, its immediate impact on measured GDP is small, with a more significant boost anticipated over the next five years.

2026 Economic and Market Forecasts

• 🎯 The S&P 500 target for 2026 is set at 5,076, with credit expected to modestly underperform due to high valuations.
• 📉 Tariffs contributed about 50 basis points to core PCE inflation in 2025, but this is viewed as a price level effect that should dissipate in 2026.
• 💼 Companies have offset tariff pressures by raising prices, absorbing costs from suppliers, and improving efficiency, contributing to flat profit margins.

Labor Market and Consumer Trends

• ⚠️ While productivity growth is accelerating, there's a concern about potential increases in frictional unemployment as new jobs are created in other industries.
• 📊 Consumer spending is expected to lag overall economic growth in 2026, despite sentiment surveys showing widespread pessimism.
• 🏦 A new Federal Reserve chair is expected in 2026, but significant policy changes are not anticipated in the near term due to committee continuity.

Market Concentration and Risks

• 📊 The top ten stocks in the S&P 500 now represent 40% of market cap and a third of earnings, a level of concentration not seen in the last century.
• 💡 Investors are shifting focus from AI infrastructure to identifying long-term productivity winners, a change from previous market behaviors.
• ⚠️ Key risks for the 2026 outlook include indiscriminate investment in AI-related assets and potential tightening Fed policy, though easing is currently expected.