Goldman Sachs: Favorable Market Dynamics for Risk in 2026

Market Outlook for 2026

• 📈 The big dynamics in the game are still favorable for risk according to Tony Pasquariello of Goldman Sachs.
• 💡 This view is supported by the expectation that the Fed will continue to provision more liquidity amid a cyclical upswing in the economy.
• 💰 With S&P earnings projected to grow 12% next year, following 11% this year, the interplay between the Fed, economic trajectory, and earnings growth affirms a bull market.

Investment Strategy: Large Caps Over Small Caps

• 🎯 The strategy remains to stay big and not get caught up in the idea that small caps will outperform large caps.
• 🚀 US mega-cap tech is expected to perform as well as or better than any other part of the market.
• 📊 A shift in leadership from AI names to large-cap cyclicals is seen as a positive sign, consistent with a view of accelerating economic growth.

AI Productivity and Earnings Growth

• 🧠 S&P earnings growth is expected to embed some of the AI productivity gains being delivered to large-cap corporations.
• 📈 Approximately 1.5 percentage points of the projected 12% S&P earnings growth is attributable to harvesting these productivity gains.
• 💼 The bet is on positive growth, with AI productivity being a key component.

Evolving Market Complexity

• ⚠️ While the market is asking more demanding questions around valuation, financing, and returns for tech, the underlying trend remains positive.
• 🔍 The simplicity of the past three years, where investments were funded out of free cash flow and earnings growth was straightforward (e.g., Nvidia), is becoming more complex.
• 🧩 Investors need to be open-minded about where these trends lead as the public market imposes discipline.