Goldman Sachs issues urgent take on stock market for 2026
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Stock market investors love a good story, and clearly, AI has been what people want to hear. For perspective, AI bellwether Nvidia (NVDA) alone accounts for 6.9% of the S&P 500 by index weight.Nvidia’s stock has returned a jaw-dropping 1,245% five-year gain, so a boring $1,000 bet in 2020 would be worth a staggering 13,449 (before taxes/fees).A $10,000 investment would be worth about $134,500 today.Also, the Magnificent Seven currently accounts for nearly 35% of the S&P 500’s total market cap/weight.So naturally, AI stocks have effectively driven the stock market, creating an impression that innovation alone should drive the next leg higher.Goldman Sachs is pushing back on that idea.The firm believes that the market’s pretty much priced in the lion’s share of AI’s upside. In fact, a November Goldman Sachs note cited by Business Insider showed that the total value of AI-linked companies surged over $19 trillion since ChatGPT’s debut, underscoring incredibly overbought conditions.Goldman Sachs' analysts weighed in, comparing the AI trade to the dot-com bubble of the late 1990s.However, the firm believes that amid the popularity of the AI trade, traditional economic growth may reemerge as a powerful catalyst in 2026.According to Goldman, that shift could spark a major earnings rebound across the broader market.If that view proves correct, the biggest beneficiaries won’t just be the tech giants dominating today’s headlines. They’ll be cyclical businesses linked to real-world spending, production, and demand, which are just the kinds of stocks investors overlook.Hence, sometimes the biggest investing opportunities are the ones that are hiding in plain sight. Goldman Sachs analysts flag a potential stock market inflection heading into 2026.Photo by Michael M. Santiago on Getty Images Cyclical sectors stand to gain the most from a 2026 growth reboundGoldman Sachs, in a recent note cited by Business Insider, feels the next leg of earnings expansion won’t come from the usual suspects.Instead of the AI leaders, the firm forecasts a much stronger economy in 2026 to give traditionally cyclical sectors a much-needed kick in the pants.Goldman’s analysts said that Industrials, Materials, and Consumer Discretionary businesses are in a position to see the most gains as economic activity picks up and tariff pressures ease.More Wall Street:Stanley Druckenmiller’s latest buys suggest shifting tech trendGoldman Sachs unveils stock market forecast through 2035Dalio’s Bridgewater quietly reshapes its portfolio amid bubble warningsPeter Thiel dumps top AI stock, stirring bubble fearsReal estate businesses may see earnings per share growth rise from 5% this year to 15% next year, while consumer discretionary firms could improve from 3% to 7%.Industrials are also likely to see a dramatic shift. Goldman forecasts EPS growth in the sector supercharging from 4% this year to 15% in 2026, underscoring healthier demand across the broader economy.The market is still underestimating the shift away from AIGoldman analysts also noted that cyclical stocks have started to outperform their tech peers, with cyclical stocks beating defensive names for 14 consecutive trading days.For perspective, that’s the longest streak in over 15 years.We can see that trend emerge using ETFs as clean benchmarks in gauging the rotation out of Big Tech.Small caps (Russell 2000 / IWM): Small caps led the rotation. From Nov. 12 to Dec. 12, IWM gained 3.93%.Dow (DIA): Blue-chip stocks saw modest upside. DIA rose 1.25% over the period, reflecting steady confidence in established businesses.Nasdaq megacaps (QQQ): Megacap tech moved lower with QQQ falling 1.28%, underscoring the idea that investors could be trimming crowded AI trades. Source: StockAnalysis Additionally, as we look ahead, earnings growth in the information technology sector is expected to remain modest, rising from 26% in 2025 to 24% in 2026. In fact, we’re already seeing things take shape, as FactSet’s Q3 earnings snapshot showed that Industrials are posting +20% blended EPS growth and Materials are at approximately +17%, both among the strongest groups.Additionally, Consumer Discretionary was also at a positive level of approximately +7.2%, pushed by big beats from (example, Amazon/GM).Related: Bank of America resets Nvidia stock forecast after private meeting