Goldman Sachs' latest report suggests that as US economic growth expectations accelerate in 2026, the stock market will enter a period of earnings prosperity, with investment opportunities shifting from AI giants to cyclical sectors.
Derivatives market pricing signals indicate that stock correlations in 2026 will hit record lows, marking the year as one dominated by stock-picking strategies. Goldman analysts note that signs of market rotation are already visible, with cyclical stocks outperforming defensive stocks for 14 consecutive trading days—the longest streak in over 15 years. Despite growing macroeconomic optimism, current market pricing reflects only about 2% growth expectations, well below Goldman's 2.5% forecast, suggesting investors have yet to fully price in 2026's upside potential.
In the near term, Goldman highlights that the final two weeks of December historically show strong seasonal trends. While the S&P 500 has declined for four straight sessions amid AI demand concerns, historical data shows an average return of 1.77% from December 17–31, leaving room for a year-end rebound.
Goldman's analysis of options markets and macro data indicates that while AI dominates headlines, its earnings impact across sectors pales compared to the coming macroeconomic boom. With easing tariff pressures and broad economic acceleration, S&P 500 EPS is projected to grow 12% next year, signaling a critical structural shift.
Cyclical sectors—industrials, materials, and consumer discretionary—are expected to lead 2026 EPS growth. Goldman forecasts real estate EPS growth jumping from 5% this year to 15% next year, consumer discretionary rising from 3% to 7%, and industrials rebounding sharply from 4% to 15%. In contrast, tech EPS growth may slow slightly from 26% in 2025 to 24% in 2026, as markets appear underprepared for this cyclical recovery.
Goldman's derivatives research head John Marshall notes that S&P 500 stock correlations are projected to hit just 23% in 2026—a record low—implying highly divergent individual stock performances. This environment will favor selective stock-picking over broad index investing.
For short-term opportunities, Goldman's team led by Gail Hafif points to historically strong late-December returns. Despite recent S&P 500 weakness (still 2.6% below record highs) and debates over AI speculation, the 1.77% average return in the year's final two weeks offers potential trading upside.
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