Market Pulse November
We believe public and private sector spending will support global growth acceleration in 2026. In Europe, defense and infrastructure investment can have a multiplier impact as funds are dispersed. In Japan, the new government has discussed plans for $100bn in household stimulus. In the US, spending has been driven by corporates with more than $1tn in AI capex expected in 2025 and 2026, while tax relief next year may be an additional tailwind.
US price pressures from tariffs have been less than anticipated, and our colleagues in Global Investment Research now expect core PCE to peak at 3.0% in December. UK and Euro area inflation has also held above central banks’ 2% target, though a softening UK labor market may alleviate future wage pressures.
Above-trend but below-expectation inflation allows the Fed and BoE to continue easing to support softening labor markets. We expect three more 25bp rate cuts from the Fed, roughly in line with market pricing. With UK fiscal policy expected to tighten in the upcoming Budget, we expect the Bank Rate to fall 100bp to 3% in 2026, well below market expectations.
Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management. As of October 31, 2025. Chart shows Goldman Sachs Global Investment Research estimates for earnings per share growth in 2025 and 2026.
Global equities can continue to rally on the back of strong earnings growth. We estimate that tariff headwinds will peak in Q3, then fiscal support should prevail as economic activity accelerates in 2026. We expect the AI theme to continue to be a major driver, including in the US where tech represents 35% of the S&P 500, and globally where 25% of the MSCI EM index is tech related.
We remain constructive on corporate credit, finding little evidence that a turn in the credit default cycle has begun. Growth remains solid, borrowing costs are declining, and corporate fundamentals signal healthy levels of leverage and interest coverage. We view recent bankruptcies as idiosyncratic rather than systemic, but still a reminder that selectivity is key.
We estimate the US dollar came into the year roughly 20% overvalued after a decade of US capital market preeminence. It has since fallen nearly 10%, initially on geopolitical concerns, but now trading in line with interest rate differentials as US yields have declined. If the Fed continues to cut as expected, we see further dollar downside, though likely as a more gradual, multi-year trend.
Asset Class Forecasts: Price targets of major asset classes are provided by Goldman Sachs Global Investment Research. Source: “3Q-25 Earnings Tracker: Trick or Beat?” and “MSCI EM rose 4% in October, marking 10th consecutive monthly gain;” As of October 31, 2025.
The Next Phase of the Tech Trade
US equities have been led by the tech sector in recent years, with optimism and investment around AI driving market action in 2025. We believe the fundamental earnings and balance sheet strength of today’s leading companies can continue to support prices, though elevated valuations and market concentration do raise risks. As technology evolves, we expect market returns to broaden and suggest investors continue to focus on diversification with opportunities across the market cap spectrum and around the world.
Source: Bloomberg and Goldman Sachs Asset Management. As of October 31, 2025. Chart shows the 12 month forward price-to-earnings (P/E) multiple and 12 month forward earnings per share (EPS) estimate for the Magnificent 7. The Magnificent 7 refers to 7 largest stocks in the S&P 500: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.
The fundamental underpinnings of today’s bull market make us constructive on its staying power. Over the last year, and over the course of the cycle, earnings have contributed roughly three-quarters of US tech’s total return and valuations have risen as profit margins increased. While today’s prices may appear expensive, the Magnificent 7’s average forward P/E multiple of 34x is still well below the peak of the tech bubble in 2000 when market leaders traded at more than 50x earnings.
Source: Bloomberg, Goldman Sachs Global Investment Research and Goldman Sachs Asset Management. As of October 31, 2025.Chart shows the annual market-cap weighted performance of the Magnificent 7; an illustrative basket of AI-exposed companies excluding Alphabet, Amazon, Meta, Microsoft, and Nvidia; and the S&P 500. The illustrative basket of AI-exposed companies is comprised of the US companies in the Goldman Sachs Global Investment Research AI Phase 1, AI Phase 2, and AI Phase 3 baskets.
The Magnificent 7 have put up magnificent performance over the last few years, with earnings and returns far outpacing the rest of the market. However, as competition increases and the market matures, we expect that lead to narrow and the AI opportunity to broaden. In 2023, Mag 7 earnings grew 39pp more than the rest of the index, but in 2025, consensus expects that gap to be just 11pp. At the same time, the earnings and return potential of other AI-exposed equities continues to grow.
Source: Bloomberg, Goldman Sachs Global Investment Research, and Goldman Sachs Asset Management. As of October 31, 2025. Chart shows the market capitalization of US companies in the illustrative AI-exposed equity basket.
The cap-weighted nature of the S&P 500 means that investors are significantly exposed to the largest companies in the index. To lean into other parts of the AI theme – e.g. the hardware enablers, software applications, and data and security companies needed for mass AI adoption – a more selective approach may be required. We think these companies exist across the market cap spectrum, and often at more attractive valuations. Magnificence may be found in quality companies beyond just the 7 in 2026.
“We/Our” refers to Goldman Sachs Asset Management. The economic and market forecasts presented herein are for informational purposes as of the date of this document. There is no guarantee that objectives will be met. There can be no assurance that forecasts will be achieved. Diversification does not protect an investor from market risk and does not ensure a profit. Please see additional disclosures at the end of this document. Past performance does not predict future returns and does not guarantee future results, which may vary.
