Summary of the US Equity Strategy Outlook Industry and Company Overview - The report focuses on the US equity market, specifically the S&P 500 index and its earnings outlook for the upcoming years, as presented by Goldman Sachs during the 2026 Global Strategy Conference in Frankfurt. Core Insights and Arguments - **Earnings Growth as a Driver**: Earnings growth is identified as the primary driver of US equity returns, with projections indicating a growth in earnings per share (EPS) for the S&P 500 from $272 in 2025 to $305 in 2026, representing a 12% increase [2][10]. - **Valuation Multiples**: The S&P 500 index and median stock are trading at elevated valuations compared to historical averages, with a forward P/E multiple of 22x for the S&P 500 and 19x for the median stock [14][58]. - **Economic Factors**: A healthy economy, the strength of the largest stocks, and increasing adoption of AI are expected to drive EPS growth in 2026 [10]. - **Market Concentration**: The report notes a record concentration in the US equity market, with the 10 largest companies accounting for 41% of the total market cap of the S&P 500 [50]. - **Speculative Trading Activity**: Speculative trading activity rose in 2025 but remains below historical extremes, indicating a cautious market sentiment [22]. - **IPO Activity**: IPO activity rebounded in 2025 but is still below average levels, with only 61 IPOs in 2025 compared to a median of 101 post-2000 [25]. Additional Important Insights - **Valuation Support**: Fundamentals support above-average equity valuation multiples, with the S&P 500 return on equity remaining strong relative to the 10-year US Treasury yield [18]. - **Growth Expectations**: Analysts expect hyperscaler capital expenditures to total nearly $550 billion in 2026, indicating strong growth in technology and cloud services [82]. - **Debt Growth**: Recent growth in TMT-related debt has been significantly lower compared to the late 1990s, suggesting a more measured approach to leveraging in the current market [90]. - **Consumer Sentiment**: There is potential upside for middle-income consumer stocks, with indexed returns showing positive trends against the equal-weight S&P 500 [74]. - **Construction Cycle**: Forward-looking indicators suggest an upturn in the nonresidential construction cycle, which could benefit related sectors [78]. Conclusion - The report presents a cautiously optimistic outlook for the US equity market, highlighting strong earnings growth, elevated valuations, and significant market concentration. However, it also notes the importance of monitoring economic indicators and market sentiment as potential risks to this outlook.

Market Overview - The current equity rally is characterized as a global affair with significant participation from various markets, driven by different dynamics [2][3] - Earnings growth is crucial for sustaining market momentum, with companies reporting favorable earnings despite external uncertainties [3][12] Capital Expenditure Trends - A notable increase in capital expenditure (capex) is observed, with a projected 50% rise this year, amounting to $350 billion, and expectations of close to a trillion dollars over the next three years [7] - The hyperscale capex trend, particularly in AI, is expected to benefit companies involved in this sector [4][7] Fiscal Policy Changes - There is a shift towards fiscal expansion in regions like Germany, with increased spending in sectors such as defense and infrastructure, which is expected to positively impact corporate fundamentals [8][9] - The unification and reform efforts in Europe are progressing, albeit slower than anticipated [8] Currency and Global Growth - Global growth is showing positive trends across key markets, with implications for currency dynamics, including a weakening yen and a strengthening dollar [6][10] - Central banks are diversifying reserve positions away from the dollar, although it remains the primary reserve currency [10][11] Corporate Earnings and Valuations - Despite potential corrections in the market, corporate earnings are expected to remain strong, with many companies demonstrating pricing power to pass costs onto consumers [12][15] - Valuations, particularly for larger cap companies, are viewed as relatively healthy, with ongoing earnings growth providing comfort despite high trading multiples [14][15]