Goldman Sachs warns that the recent surge in stock market momentum, driven by artificial intelligence, could foreshadow weaker U.S. equity returns in the coming months.
The S&P 500 hit 14 new record highs in the past month, returning 10% year-to-date. Technology stocks contributed 85% of the index's gains, while the rest of the market returned only 3%.
Goldman's Momentum factor surged 25% over the past three months, one of its sharpest upturns. Hedge fund leverage and net exposure to momentum are near five-year highs.
The bank describes the equity market as "one big trade" rather than "a market of stocks." The macroeconomic backdrop and AI investment trajectory will be key.
Since 1980, there have been 11 similar episodes where momentum rallied 20% or more over three months. Typically, momentum extended gains for another month before reversing.
However, this rally is supported by rising earnings estimates. Bottom-up consensus for S&P 500 EPS in 2026 and 2027 rose 8% year-to-date, driven by AI capex and higher energy prices.
For shelter from the AI trade, Goldman recommends stocks with positive earnings revisions and low sensitivity to AI and economic growth. Consumer Staples emerge as the least exposed sector.
