Goldman Sums Up The Year In Three Little Words

2025 was a particularly interesting year, according to Goldman Sachs trader Chris Hussey, because it was characterized by 3 words all at once: noise, quiet, and transition.

• Noise came in the form of a second Trump Administration and the implementation of sweeping policy changes including DOGE, tariffs, and a brand of populist stimulus that was new for markets to digest. The biggest news came on the tariff front where the economy was able to digest a Great Depression style tariff increase with relative ease -- partly because the tariffs put in place turned out to be much lower than the ones originally proposed back on Liberation Day (Apr-2). Markets were also able to digest sweeping efforts to shrink the size of the Federal government culminating in the longest ever federal government shutdown this fall that pushed net non-farm payroll additions into negative territory in October. Looking ahead, we see less policy noise as the Supreme Court coupled with a desire to curb inflation may curtail some tariffs and stimulate some fiscal spending. And finally on the noise front, a new brand of stimulus emerged in 2025, specifically targeting individual companies with everything from price controls to product sales restrictions and even some direct stimulus -- and also included the passage of a more conventional government stimulus bill in early July that paves the way for tax relief in 2026.

• Quiet came in the form of more of the same. While a lot was transpiring on the policy and geopolitical front, even more rolled along just as it has been doing for several years now. The Russia-Ukraine war continues. Market concentration only intensified (now 41% of the S&P 500's market cap is in the top 10 stocks). Upward earnings momentum for the S&P 500 rolled right through the noise, with our strategy team's S&P 500 EPS estimates for 2026 rising 6% over the course of the year to $305 today from $288 at the beginning of the year.

• Transition was a third operative word for 2025. We of course had the President transition from Biden to Trump. But focusing on markets, we also saw transitions develop in the two biggest themes we were focused on going into 2025: AI and GLP-1s. For AI, signs are emerging of a transition within the infrastructure phase that incorporates custom chips in addition to NVDA's chips. Plus there is a transition taking place from the infrastructure phase to later phases of the AI investment cycle, including potentially the AI productivity beneficiaries. And for GLP-1s, we saw a transition in 2025 favoring LLY's drug over NOVO's, and we are also seeing a potential transition across Healthcare to new diseases being treated by new classes of drugs (see top 10 themes below).

As we look forward to 2026, the noise, quiet, and transition themes may be poised to continue.

• Noise. Presidential Administrations often get less noisy in their second year, but mid-term elections loom which could bring with them political change at the state and congressional level. Plus the Supreme Court is scheduled to weigh in on a number of cases that could have market implications, including the legality of many of the Trump Administration tariffs.

• Quiet is also arguably the most apt word to describe our forecast for 2026. On the economic front, look for US GDP growth to average 2.6% in 2026, up from 2.1% in 2025 and only a touch below 2024's pace as the combination of tariff relief, stimulus, and AI-driven productivity improvements drive continued solid growth. On the corporate earnings front, look for S&P 500 EPS growth to accelerate by 150bp to 12.1% in 2026 from 10.5% in 2025. And for the S&P 500 index, we also forecast a year-end 2026 target of 7600 -- up ~11% from current levels, a more modest return than 2025's 16.8% price rise, but still a strong return for stocks.

• Transition in 2026 may be characterized by an even more pronounced rotation into a broader group of AI beneficiaries. Already in 2025, nearly all major equity markets have outperformed the US in local and in USD terms. And in the year ahead, Ben Snider recommends gaining exposure to a number of pro-cyclical areas, including the Russell 2000, non-residential construction stocks, consumer stocks with exposure to the middle-income consumer, and AI Productivity Beneficiaries -- companies that can cut costs or boost revenues by adopting AI-driven technologies and solutions.

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