Goldman Sachs tells investors to stay put as S&P 500 EPS growth slows to 11%

For investors considering trimming stock exposure following last week’s technology selloff, the note makes a supportive case: on its own, weaker earnings growth has seldom brought a bull market to an end. The main danger, however, is the exception the firm itself flags: cycles that external shocks cut short, as aggressive rate hikes did in 2022. That is the scenario traders will monitor most intently while the Federal Reserve is on a hiking path. A rate outlook that turns more hawkish would test the case for remaining invested more directly than a slower pace of profit growth. By sector, the note prefers large technology platforms that combine AI-driven advertising tools with pricing power, over smaller platforms and traditional media agencies.

Goldman Sachs anticipates a sharp deceleration in US earnings growth as the uplift from AI spending diminishes, yet contends that history has punished investors who sell at the top.

Highlights:

• Goldman Sachs Asset Management forecasts that S&P 500 earnings per share growth will fall from 36% in 2026 to 11% in 2027 and again in 2028, as the boost from AI capital spending moderates
• During prior bull markets, about 40% to 60% of total returns arrived after earnings growth had peaked, provided that external shocks did not bring the cycle to an early close
• It cites trade tensions in 2018 and aggressive rate increases in 2022 as cases of cycles cut short, with returns of only 8% and 10% after the peak
• Goldman advises investors to remain invested and handle risk through diversification instead of attempting to time the top
• Regarding Meta, the bank highlights strong results, record engagement and swift adoption of its Muse AI agent, with commerce emerging as an important use case
• It names AI-driven measurable advertising, scale and pricing power, and tight cost control as sources of durable growth

Goldman Sachs Asset Management has advised investors against attempting to pinpoint the peak of the US equity market. Its argument is that, historically, a substantial portion of bull market gains has arrived after earnings growth peaks, even while it projects a steep slowdown in S&P 500 profit growth.

The asset manager said in a research note that it expects S&P 500 EPS growth to decelerate from 36% this year to 11% in 2027 and 11% again in 2028, as AI-related capital spending provides less support to earnings.

Goldman said that slowdown alone does not justify leaving equities. An analysis of Bloomberg data as of October 30 showed that in earlier bull markets, about 40% to 60% of the total return was generated after earnings growth peaked. The S&P 500 gained 112% before the earnings peak in the 1994 to 2000 cycle and another 166% afterward. In the 2009 to 2015 bull market, it returned 155% before the peak and 105% after; the 2002 to 2007 run produced 75% and 46%, respectively.

Exceptions occurred when outside forces brought a cycle to a premature end. As trade tensions intensified, the 2016 to 2018 bull market added only 8% after earnings growth peaked. Aggressive interest rate increases took hold and left the 2020 to 2022 cycle with a gain of just 10% after its peak. Goldman said investors who try to call the top risk missing substantial gains, and it recommended staying invested while lowering risk through diversification.

The bank also noted consistent demand across digital platforms. It pointed to Meta’s robust results, which it said were backed by record user engagement and swift adoption of Muse, the company’s new personal AI agent. According to Goldman, commerce is becoming a major use case and could open revenue streams in transactions, subscriptions and business agents. A global rollout has been held back by high inference costs, although Meta anticipates efficiency improvements as it optimizes its models and infrastructure.

Goldman named three forces behind durable growth. The first is advertising budgets moving toward platforms able to demonstrate results and automate campaigns using AI, a shift that benefits leading technology companies and puts pressure on traditional agencies. The second is scale and pricing power: market leaders have so far passed on higher costs without a meaningful blow to demand. The third is cost discipline, with media and consumer companies reducing expenses to finance AI investment while safeguarding margins.

The argument for remaining invested now depends on whether the current environment looks more like the long cycles of the 1990s and 2010s or the shorter cycles that policy shocks ended.