Goldman Sachs reports that as the economy accelerates, EPS growth in three major cyclical sectors—industrials, materials, and consumer discretionary—is poised for an explosive rebound, potentially even surpassing the technology sector.
While investors remain fixated on artificial intelligence and the mega-cap tech giants driving much of the stock market's gains, Goldman Sachs suggests that next year's greater opportunities may lie elsewhere.
In a report released last Thursday, Goldman Sachs analysts wrote: "At the sector level, we expect accelerating economic growth in 2026 to provide the biggest boost to EPS growth in cyclical sectors, including industrials, materials, and consumer discretionary." The analysts noted that their broader projections also factor in easing tariff pressures.
In line with this view, analysts stated they anticipate EPS for real estate companies to rise from 5% this year to 15% next year, while consumer discretionary firms are projected to see EPS growth increase from 3% to 7%.
Industrial companies are also set for a major EPS rebound, with growth expected to accelerate from 4% to 15%.
By contrast, Goldman Sachs forecasts that EPS growth for information technology firms will slow from 26% in 2025 to 24% in 2026.
Signs of this shift are already emerging in market action.
In another report last Friday, Goldman Sachs noted that as of Thursday, cyclical stocks had surged for 14 consecutive trading days, outperforming defensive stocks—marking the longest such streak in over 15 years.
Even so, Goldman analysts say this recent outperformance still doesn't fully reflect the bank's more optimistic growth outlook. Market positioning suggests investors are pricing in growth closer to 2%, well below Goldman's 2.5% forecast.
The analysts wrote: "Despite the cyclical rebound and widespread economic optimism in our client discussions, markets don't yet appear to be fully pricing in potential 2026 acceleration."
This acceleration is central to Goldman's thesis. The bank's analysts wrote they expect overall U.S. economic growth to pick up next year, helping drive 12% EPS growth for the S&P 500.
Goldman's latest report comes as investors continue debating whether stocks are entering an AI-driven speculative bubble.
The S&P 500 has gained 16% this year, with the "Magnificent Seven" tech stocks now accounting for about one-third of the index's weighting.
Nvidia, the AI chipmaker and world's most valuable public company, has seen its shares climb 30% this year.
Last month, Goldman analysts noted that markets may have already priced in most of AI's potential gains.
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