Goldman Sachs Expects U.S. Stocks to Hit New Highs! S&P 500 Earnings Surge 45% Year-on-Year, AI Investment Boom Remains Key Driver

Recent U.S. stock market performance has been strongly supported by corporate earnings data. John Flood, Goldman Sachs partner,指出 that as market positioning turns healthier and profit growth exceeds expectations, the S&P 500 index still has the potential to reach new historical highs this year. He emphasizes that the key driver behind this bull market is not merely capital chasing momentum, but actual corporate earnings performance.

According to Goldman Sachs, the year-on-year EPS growth rate for S&P 500 constituents in Q2 surged to 45%, far surpassing the initial market consensus of 22% at the start of the quarter.

Breaking down the sources of growth, approximately 19 percentage points came from 'other income' related to equity investments by Alphabet (GOOGL-US) and Amazon (AMZN-US), totaling around $151 billion. Microsoft (MSFT-US) also saw an increase of about $3 billion from similar income items.

Even after excluding these non-recurring non-operating gains, the S&P 500's EPS growth rate remains as high as 26%, not only significantly accelerating from Q1 but also marking the fastest pace since 2021.

Notably, when examining individual stock performance, the median EPS growth rate for S&P 500 constituents was 12%, also exceeding the initial market consensus of 9%, indicating that this earnings improvement is not limited to a few tech giants but reflects a broad-based recovery.

Strong financial results have simultaneously prompted Wall Street analysts to raise their subsequent earnings forecasts. Since Q3, the market consensus estimate for S&P 500's 2027 EPS has been revised upward by about 1%, with the energy and financial sectors seeing the most significant upward adjustments.

In terms of revision breadth, the number of companies with upward-revised earnings estimates continues to exceed those with downward revisions among S&P 500 constituents, reflecting positive momentum in earnings revisions.

Goldman Sachs believes this broad-based optimistic adjustment is a key foundation supporting current market valuation levels.

Goldman notes that market sentiment has clearly cooled compared to previous months. Its proprietary sentiment and positioning indicator has dropped to the 53rd percentile, and multiple data points show investors are turning more cautious, including reduced bullish bets, futures positions no longer at extreme highs, and active fund managers reducing their U.S. stock holdings—reflecting a retreat in market optimism.

The deleveraging trend among hedge funds is particularly evident, with overall leverage ratios giving back half of their year-to-date gains, and net leverage levels also declining from年初 levels.

On the retail investor side, leverage usage is also showing signs of cooling: South Korea's margin trading balance has retreated from its historical high, Japan's margin buying volume has begun to contract from its highest level since 1990, and U.S. investor enthusiasm for semiconductor stocks has somewhat weakened.

Flood believes this 'defrothing' of positioning structure indicates a more robust market foundation, with relatively limited potential for profit-taking sell-offs, thus creating more favorable conditions for further index gains.

From a cross-market comparison perspective, Goldman data shows that, relative to other major stock markets, current U.S. equity valuations remain relatively 'cheap'.

Flood also points out that the benefits of the AI-driven super investment cycle have not yet been fully realized, as global tech giants continue to ramp up capital expenditures, which will help further expand the depth and breadth of corporate earnings improvement.

However, Goldman also warns investors of a seasonal risk. Looking back at the 13 U.S. midterm election years since 1974, the median return of the S&P 500 index from early August to Election Day was only 0%.

This means that even if corporate fundamentals continue to strengthen steadily, Flood's expectation for a new high this year still carries some uncertainty in timing.

Overall, Goldman's conclusion is that earnings performance indeed provides a solid foundation for this bull market, but whether the rally can continue depends on the development of future variables.