The US stock market’s strong rally in 2026 has been powered entirely by corporate profit growth rather than rising stock valuations, according to Goldman Sachs Research. That dynamic is expected to continue through the rest of the year and into 2027.
 

What is the outlook for the S&P 500 in 2026?

The S&P 500 is forecast to rise to 8000 by the end of this year, up from an earlier projection of 7600, reflecting upgraded earnings estimates, according to Ben Snider, chief US equity strategist in Goldman Sachs Research. The rally would mark a 6% gain (as of May 26). The team projects S&P 500 earnings per share (EPS) of $340 in 2026, a 24% increase from the prior year, and $385 in 2027, representing 13% growth. 

The investment boom in artificial intelligence infrastructure (AI) is a core factor behind the upgraded outlook. The consensus of analyst estimates is for the largest hyperscale tech companies to spend $754 billion on capital expenditures this year—an 83% increase from 2025—and $905 billion in 2027.

“We believe there is upside risk to consensus capex estimates in 2027,” Snider writes. “Analysts have been too conservative during each of the past three years.”

Snider expects the beneficiaries of that spending to account for roughly half of total S&P 500 earnings growth in 2026 and next year. Semiconductor companies are the primary direct beneficiaries, and a number of tech hardware, industrials, and utilities companies are also getting a large earnings boost from the AI buildout.

However, the broader economy presents a more mixed picture for the stock market. Softening consumer spending, elevated input costs, and fading fiscal stimulus from recent tax legislation are expected to weigh on companies that are not benefitting from AI investment, according to Goldman Sachs Research. “Recent inflation readings and corporate commentary have signaled the risk to profit margins from input cost pressures,” Snider writes.

Furthermore, the sustainability of the momentum in corporate earnings will depend on corporate America’s ability to translate AI investments into recurring profits, Snider notes.

While enterprise adoption appears to be in its early stages, our strategists expect AI’s impact on productivity and earnings to become increasingly visible in coming years. The team’s forecasts embed a 0.4 percentage point boost to S&P 500 EPS growth from AI productivity this year and a 1.5 percentage point boost in 2027.

Are US stocks overvalued?

The S&P 500 trades at about 21 times forward earnings, a level that ranks in the 88th percentile relative to the past 40 years. Despite that historically elevated reading, Goldman Sachs Research’s base case is for the multiple to remain roughly flat through year-end.

Modest declines in Treasury yields, a key input for valuation models, are expected to provide some support for valuations. But that is expected to be offset by decelerating economic and earnings growth, skepticism about the staying power of AI-related profits, and ongoing geopolitical uncertainty.

What are the signs that a bull market is fading?

The conditions that have historically marked the end of major bull markets are mostly absent, but some cautionary signals have started to appear, Snider writes. Retail trading and Goldman Sachs Research’s speculative trading indicator have increased, though both remain below recent and historical highs. At the same time, an increase in energy prices stemming from the closure of the Strait of Hormuz is expected to result in weaker consumer spending, more pressure on profit margins, higher inflation, and less easing from the Federal Reserve than our strategists expected coming into the year.

The strength of the AI trade that has recently propelled the S&P 500 higher has also driven a narrowing of market breadth and a sharp rise in momentum—a strategy predicated on investing in stocks that have performed well. These dynamics have historically signaled elevated market risk, according to Goldman Sachs Research.

What should US stock investors expect for the rest of 2026?

Several factors point to more moderate returns in the near term, according to Goldman Sachs Research. There’s a historical pattern of seasonal weakness ahead of midterm elections, and large, recent increases in AI capex estimates and associated earnings forecasts also create a high bar for sustaining the pace of upward revisions going forward. There are signs that economic activity is slowing.

Going forward, aggregate S&P 500 earnings growth will increasingly rely on hyperscale tech companies’ ability to produce large returns on their AI investments. “Generating sufficient returns on AI investment spending will ultimately require that enterprise end users enjoy sufficient productivity gains to justify spending on AI applications,” Snider writes.

Enterprise adoption of AI remains in early stages, but Goldman Sachs Research expects the impact on productivity and earnings to become increasingly visible in coming years. Goldman Sachs Research's forecasts embed a 0.4 percentage point boost to S&P 500 earnings growth from AI-driven productivity this year and a 1.5 percentage point boost in 2027.

It will be important for investors to diversify beyond AI-infrastructure stocks, Snider suggests, given the backdrop of narrow market breadth and elevated return differences among individual stocks. An improvement in the geopolitical outlook would likely give a bigger boost to consumer-facing sectors that are more dependent on economic growth than to AI infrastructure stocks, according to Goldman Sachs Research.

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