Core Viewpoint - The report emphasizes that the current AI-driven U.S. stock market is supported by two main pillars: technology giants and loose monetary and fiscal policies, but warns against blindly chasing high valuations as the market may need to consolidate in the short term [2][4]. Group 1: Macroeconomic and Corporate Earnings - Goldman Sachs predicts that U.S. GDP growth will slow to 1.3% by 2025, significantly lower than recent years, particularly as the labor market is in a "stalling state" [3]. - However, the economy is expected to return to trend growth levels of 1.8% and 2.1% in 2026 and 2027, respectively, supported by a loose financial environment, strong fiscal support, deregulation, and a surge in capital expenditure in the AI sector [4]. - Despite uncertainties such as tariffs, Goldman Sachs forecasts a steady 7% growth in S&P 500 earnings per share (EPS) for the next two years, reaching $262 and $280, respectively [4][5]. Group 2: Valuation and Capital Flows - The report highlights two warning signals for the short-term outlook of U.S. stocks: market valuation and capital flows [6]. - The S&P 500 index currently has a price-to-earnings ratio of 22 times based on expected earnings for the next 12 months, placing it in the 96th percentile since 1980, indicating a "harsh" valuation [7][8]. - The report notes that high valuations serve more as a "roadmap" for future returns rather than a short-term sell signal, as sustained high valuations have not prevented significant market gains in the past [9]. - Systematic trading funds are reported to be "quite saturated," and stock buybacks are expected to be limited in the coming months, suggesting that capital will not be the primary market driver in the short term [10]. Group 3: Key Variables - The report identifies three significant variables that could impact the market: the Federal Reserve, AI, and the law of large numbers [12]. - Goldman Sachs anticipates approximately five interest rate cuts by the Federal Reserve from now until mid-2026, which historically has been favorable for the S&P 500 index, advising not to go against the Fed, especially without an economic recession [14][15]. - AI is highlighted as a major swing factor, with ongoing debates about whether the market is in the early stages of a new era or experiencing significant capital misallocation since the tech bubble [16]. - The report acknowledges the exceptional performance of U.S. tech stocks but raises concerns about sustaining high growth rates at such large scales, using Nvidia as an example of the challenges faced [17][18].