Goldman Sachs noted in its latest report that as expectations for U.S. economic growth are projected to accelerate in 2026, the U.S. stock market will experience a wave of earnings prosperity, with investment opportunities shifting from artificial intelligence giants to cyclical sectors.
Meanwhile, pricing signals in the derivatives market indicate that correlations among individual U.S. stocks will drop to historical lows in 2026, signaling that the year will be predominantly driven by 'stock-picking' strategies.
Goldman Sachs analysts emphasized that signs of a market style shift have emerged, with cyclical stocks outperforming defensive stocks for 14 consecutive trading days, marking the longest winning streak in over 15 years. Despite rising macroeconomic optimism, current market pricing reflects growth expectations of only around 2%, significantly below Goldman Sachs’ forecast of 2.5%, implying that investors have yet to fully price in the upside potential stemming from the anticipated economic acceleration in 2026.
Under this long-term outlook, the short-term trends of the U.S. stock market are also worth paying attention to. Although$S&P 500 Index (.SPX.US)$Recently, the market has fallen for four consecutive trading days due to concerns about AI demand. However, Goldman Sachs pointed out that the last two weeks of the year are historically an "overwhelmingly positive seasonal period." Historical data shows that the average return from December 17 to 31 is 1.77%, which provides room for the stock market to rebound before the end of the year.
Through in-depth analysis of the options market and macroeconomic data, Goldman Sachs believes that while AI dominates current headlines, its actual contribution to earnings across industries appears modest compared to the impending macroeconomic boom. As tariff pressures ease and the economy accelerates broadly, S&P 500 earnings per share (EPS) are expected to grow by 12% next year, indicating a critical structural adjustment in the market narrative.
Earnings growth in cyclical sectors is set to lead in 2026.
Goldman Sachs clearly stated in the report that the acceleration of economic growth in 2026 will significantly boost the earnings per share growth of cyclical industries, including the industrial, materials, and consumer discretionary sectors. In contrast, the technology stocks represented by the "Seven Giants," although currently accounting for about one-third of the S&P 500 index's weight, and this year...$NVIDIA (NVDA.US)$Although individual stocks have seen astonishing gains, Goldman Sachs had previously warned that the market may have already priced in most of the potential benefits brought by AI.
In terms of specific data, Goldman Sachs forecasts that earnings per share growth for real estate companies will surge from 5% this year to 15% next year; growth in the consumer discretionary sector is expected to rise from 3% to 7%; industrial companies will also see a significant rebound, with their earnings per share growth projected to accelerate from 4% to 15%.
In stark contrast to the robust rebound in cyclical stocks, Goldman Sachs expects earnings per share growth for information technology companies to moderate, slightly declining from 26% in 2025 to 24% in 2026. Analysts believe that despite widespread optimism in client conversations, the market is not yet fully prepared for this cyclical rebound.
Extremely low correlation signals a 'stock-picker’s market.'
In addition to the macro-level industry rotation, John Marshall, the head of derivatives research at Goldman Sachs, through the analysis of$S&P 500 Index (.SPX.US)$ and$NASDAQ 100 Index (.NDX.US)$The interpretation of the one-year at-the-money forward contract indicates that investors expect the correlation between individual stocks in 2026 to be lower than at any time on record.
In a note to clients, John Marshall stated that looking ahead to 2026, investors anticipate that the correlation among S&P 500 constituents will be only 23%. This extremely low correlation implies that the movements of major index components will no longer converge. The trend is driven by both a uniform selling strategy for index options and the opposing impacts of fundamental themes such as AI on different stocks—acting as a headwind for some while a tailwind for others.
This suggests that market performance in 2026 will be highly divergent, with strategies focused solely on buying indices potentially becoming ineffective, and precise stock selection emerging as the key to profitability.
The year-end seasonal rebound window has opened, with average returns over the final two weeks reaching 1.77%.
Regarding short-term market trends, a Goldman Sachs analysis team led by Gail Hafif noted that U.S. equities are entering a seasonally favorable time window. Despite recent setbacks for the S&P 500 Index, which remains 2.6% below its all-time high, and ongoing debates over whether the AI boom has created speculative bubbles, historical data supports the year-end rally thesis.
Analysts emphasized that while the average gain for December as a whole stands at 1.98%, the period from December 17 to December 31 alone yields an average return of 1.77%. The Goldman Sachs team indicated that although dramatic surges may not occur, there is indeed upward potential given the current market positioning, offering investors potential trading opportunities during the final two weeks of the year.
Editor/Doris