LIVE MARKETS-Market broadening likely to continue thanks to earnings

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MARKET BROADENING LIKELY TO CONTINUE THANKS TO EARNINGS

The recent broadening of the U.S. stock market's gains is likely to continue, and of the three potential paths toward an extended period of market broadening, one driven by "earnings broadening" is the most likely, according to Goldman Sachs strategists.

Goldman's forecast for economic acceleration in early 2026 suggests that scenario is the most likely in the near term, they write in a note out late on Friday.

Goldman strategists argue that "in 13 of the last 15 years, comparing the S&P 500 .SPX vs. the equal-weight S&P 500 .SPXEW, the index with the stronger growth in forward EPS estimates posted the superior share price performance."

They say that estimates "suggest the largest stocks will continue to drive superior earnings per share growth for the S&P 500 than for the SPXEW in 2026 (15% vs. 10%) and 2027, creating a high bar for sustained earnings-driven broadening."

All but one of the 11 S&P 500 sectors - energy - is expected to show earnings up at least 7% this year, according to LSEG.

Goldman strategists note, however, that "slower growth in 2H 2026 and 2027 should limit the runway for the widespread broadening rotation that has characterized the last several weeks."

The other two possible scenarios for continued market performance broadening - "a 'catch down' collapse in the valuations of the largest stocks," or "a broad-based 'catch up' increase in valuations across the market" - both appear unlikely, they say.

After years of watching technology stocks drive the U.S. bull market, investors have recently seen outperformance in small- and mid-cap stocks as well as in energy, industrials and materials sectors.

Investors have worried about expensive tech valuations and whether the artificial intelligence theme will keep driving the market.

(Caroline Valetkevitch)

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