Goldman Sachs: US Equities 2026 Target 8000 Points, Bull Market Driven by Earnings
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Goldman Sachs: US Equities 2026 Target 8000 Points, Bull Market Driven by Earnings
Goldman Sachs forecasts the S&P 500 index to rise 8% to 8,000 points by the end of 2026, with earnings growth as the core driver, though volatility will persist.
- S&P 500 Index target of 8,000 points by year-end 2026, expected to rise 8%
- S&P 500 EPS growth projected at 24% in 2026 and 13% in 2027
- Record stock issuance will not undermine the 2026 bull market
- AI infrastructure stocks contribute approximately half of S&P 500 EPS growth
- Market volatility will remain elevated; allocation to low-correlation stocks recommended
- Valuations are at historical highs but driven by earnings rather than P/E expansion
Report interpretation
Overview
Goldman Sachs released a US equity strategy report analyzing market trends from a supply-demand perspective. The core conclusion is that despite a曲折 path, earnings growth will continue to drive US equity gains, with the S&P 500 index expected to rise 8% to 8,000 points by the end of 2026. The report argues that record stock issuance will not disrupt the 2026 bull market, although supply-demand balance will face challenges in 2027. AI infrastructure investment remains robust, contributing about half of S&P 500 earnings growth, while market volatility will stay high.
Core views
US equity outlook: The report forecasts the S&P 500 index to reach 8,000 points, an 8% increase, by the end of 2026. Despite uncertainties from high trading leverage, macroeconomic prospects, and AI construction leading to persistent volatility, investors are anchored to recent earnings, which have solid prospects. Year-to-date S&P 500 returns stand at 8%, AI infrastructure stocks returned 34%, and other index constituents returned 2%, aligning with revisions across groups. Stock issuance: While 2026 US stock issuance reached record levels, it will not undermine the bull market. Three reasons support this: IPO activity is rising but not extreme, with approximately 100 deals in 2026, near the 25-year average; supply relative to the market size remains moderate, with expected $700 billion in corporate equity issuances representing just 1% of Russell 3000 market cap; and $1 trillion in total buybacks will exceed supply, alongside M&A activity, international investor demand, and household needs. However, supply-demand balance will become more challenging after lock-up expirations in 2027. Earnings: S&P 500 EPS growth of 24% in 2026 and 13% in 2027 serves as the fundamental engine of the bull market. Q1 2026 saw strong and broad-based earnings growth, with aggregate EPS up 18% YoY (excluding one-time items), median stock earnings growth at 14%, marking one of the strongest quarters in a decade. Future quarterly earnings growth is expected to remain solid but narrow and decelerate due to impacts from energy prices on consumer spending and corporate margins. AI infrastructure stocks are projected to contribute about half of this year's S&P 500 EPS growth. AI investment: The AI investment boom shows no signs of slowing. Consensus forecasts predict the largest US hyperscale companies will spend over $750 billion in capital this year, an 84% increase from 2025 and $200 billion higher than early-year expectations. Analysts forecast another 20% increase next year to $920 billion. However, rising token costs have raised investor concerns that AI revenues may be insufficient to justify the scale of investment and current market valuations. Valuation: Stock valuations are at historical highs, but the rise is driven by earnings rather than P/E expansion. The S&P 500 trades at 21 times forward earnings, in the 85th percentile since 1980, yet is essentially flat compared to one year ago (when the index was 25% lower). Median S&P 500 stocks trade at 18 times, also above historical norms but consistent with recent years.
Analysis framework
Goldman Sachs employs a supply-demand framework to analyze US equity trends, assessing supply-side factors such as stock issuance, buybacks, and index inclusion rules alongside demand-side factors like earnings growth, investor sentiment, and valuation for a comprehensive judgment. The report uses historical comparisons (e.g., IPO activity vs. 2021 and 1999), data dissection (e.g., comparing AI infrastructure stocks against other index constituents), and scenario analysis (e.g., impact of large IPOs) to argue that earnings growth is the core market driver. Tools including valuation analysis (P/E ratios, free cash flow multiples), market breadth analysis (narrow markets), and sentiment indicators (speculative trading metrics) are used to assess market risks.
Methodology notes
Analyze market trends from the perspectives of stock supply (issuance, lock-up expirations) and demand (buybacks, M&A, investor allocation)
The report assesses the impact of supply-demand balance on the market by analyzing supply-side factors such as stock issuance volume, buyback scale, and changes in index inclusion rules, combined with investor allocation demand. For example, the $700 billion issuance volume in 2026 accounts for only 1% of Russell 3000 market cap, while $1 trillion in buybacks will offset supply pressure.
Distinguish between sustainable earnings growth and one-time factors
In analyzing S&P 500 earnings growth, the report excludes one-time items such as 'other income' from Amazon and Google, revealing actual Q1 earnings growth of 18% rather than the surface 27%, helping investors understand earnings quality.
Assess valuation levels through historical percentiles of price-to-earnings ratios
The report notes the S&P 500 trades at 21 times forward earnings, in the 85th percentile since 1980, but emphasizes that valuation has not expanded (flat compared to one year ago), with the rise driven primarily by earnings growth rather than valuation improvement.
Judge market prosperity stages using market breadth and volatility indicators
The report uses S&P 500 market breadth indicators (at historical lows) and surging leveraged ETF assets to signal that narrow markets and high risk appetite may foreshadow increased volatility.
Key data
- S&P 500 Index Target End of 20268,000 PointsExpected to rise 8%
- S&P 500 EPS Growth Rate 202624%Projected growth of 13% in 2027
- 2026 Corporate Stock Issuance Size$700 BillionEquivalent to 1% of Russell 3000 market cap
- 2026 Total Buyback Size$1 TrillionWill exceed stock supply
- AI Infrastructure Stocks YTD Return34%Other S&P 500 constituents returned 2%
- S&P 500 Forward P/E Ratio21xAt 85th percentile since 1980
- Hyperscale Companies 2026 Capital Expenditure$750 Billion84% increase from 2025
Impact & implications
The report argues that earnings growth will continue to support the US equity bull market, but investors must monitor volatility risks. Portfolio recommendations focus on companies with strong earnings power, while allocating to AI infrastructure stocks and 'insensitive portfolio' stocks with low correlation to AI trades to reduce volatility. Regarding AI investments, the key question is whether earnings boosts from AI investments will fade before broader corporate returns materialize, but this issue is unlikely to be resolved in the short term.
Risks
- Weakening corporate earnings outlook is the primary structural risk to the bull market
- Closure of the Strait of Hormuz could jeopardize earnings and the Fed's dovish stance
- AI trading market breadth is narrow, making it vulnerable to AI computing demand or supply shocks
- High-valuation, high-concentration bull markets may end due to excessive speculation, Fed tightening, surge in stock issuance, or growth disappointments
What to watch
- Time lag between earnings boosts from AI investments and broader corporate returns
- Changes in stock supply-demand balance after lock-up expirations in 2027
- Impact of energy prices on consumer spending and corporate margins
- Market volatility indicators (leveraged ETF assets, retail margin debt)