Goldman Predicts S&P 500 Could Reach 7,600 by 2026 — Valuations Remain the Uncertainty

Goldman Sachs Predicts S&P 500 Could Reach 7,600 by 2026

Goldman Sachs has issued a bold forecast for the S&P 500, projecting the index could rise to 7,600 by 2026. This outlook comes despite current high valuations, which could amplify market declines if earnings fall short of expectations.

According to the firm's latest equity outlook, Goldman anticipates a total return of 12% for the S&P 500 in 2026, emphasizing that earnings growth will remain the main engine behind these gains.

However, the investment bank cautions that elevated valuations are a significant risk factor. Should corporate results disappoint, these high multiples could lead to increased market volatility.

Expectations for Strong Equity Performance

Analyst Ben Snider shared in a recent note that Goldman Sachs expects another year of robust returns for U.S. stocks in 2026. The bank believes that continued economic expansion and revenue growth will drive higher profits. Additionally, the adoption of artificial intelligence is expected to provide a fresh boost to productivity, with leading companies maintaining their strong performance.

Goldman projects that S&P 500 earnings per share will climb by 12% in 2026 and rise another 10% in 2027. In 2025, earnings contributed 14 percentage points to the S&P 500’s 16% price return. Historically, since 1990, earnings have accounted for most of the index’s gains, adding eight percentage points to its average annual return of 9%.

The bank’s base case assumes the S&P 500 will keep its current forward price-to-earnings ratio of 22, matching both today’s level and the starting point for 2025. Still, Snider warns that these high valuations could magnify any downturn if earnings disappoint.

The Next Stage of the AI Investment Cycle

Investment in artificial intelligence remains a cornerstone of the bullish outlook. Analysts estimate that major technology firms—including Amazon, Microsoft, and Meta—will collectively invest $540 billion in AI-related capital expenditures in 2026, representing about 75% of their cash flow.

While overall spending will remain substantial, the pace of growth is expected to slow from the rapid 70% year-over-year increase seen in 2025. Goldman also notes that as spending stays high, companies may increasingly rely on debt to fund these investments, with more capital expenditures in 2026 likely financed through borrowing.

This shift is expected to prompt a rotation within the AI sector, moving investor focus from hardware and infrastructure providers to businesses that harness AI to enhance productivity—what Goldman refers to as "Phase 4" beneficiaries.

Market Concentration: A Growing Structural Risk

Goldman Sachs highlights another risk: the growing concentration of market gains among a handful of large companies. The ten biggest stocks now make up around 41% of the S&P 500’s total market value and were responsible for about 53% of the index’s return in 2025.

This means the performance of the S&P 500 is increasingly tied to the fortunes of a small group of mega-cap stocks. If these leaders continue to excel, concentration can be beneficial. However, any stumble among them could quickly impact the entire index.

As Goldman’s analysts put it, “In 2026, individual company performance will have an outsized impact on the broader market. Shifts among the largest stocks will create both upside and downside risks for the index as a whole.”

Can High Valuations Persist Alongside Market Gains?

Goldman’s forecast is optimistic, but not without caution. Their outlook is based on a supportive macroeconomic environment, featuring steady growth and ongoing Federal Reserve rate cuts—conditions that have historically supported stable or rising market multiples.

Despite comparisons to the overheated markets of 2000 and 2021, Goldman believes speculative excess is not a major concern. Initial public offering activity in 2025 was moderate, short interest remains elevated, and equity fund inflows were subdued. U.S. equity mutual funds and ETFs saw net inflows of just $100 billion in 2025, a mere 0.2% of the S&P 500’s market cap, compared to $700 billion for bonds.

The main macroeconomic risks, according to Goldman, are a weakening growth outlook or a shift toward higher interest rates. For investors, the takeaway is clear: while Goldman is optimistic about the market’s direction, they acknowledge the journey may be volatile.

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