Goldman Sachs strategists told clients to favor sectors that have lagged as tech stocks wobble. They offered a screen of 23 Russell 1000 stocks from healthcare and consumer staples, and expect S&P 500 earnings growth to slow in 2027.
Goldman Sachs strategists led by Ben Snider told clients in a note late Friday to focus on buying stocks in sectors that haven't done as well. The advice comes as the tech sector that has powered the stock market wobbles.
Consumer and defensive names in focus
Goldman recommends consumer-facing stocks, on the view that energy prices and interest rates will fall next year and lift real income growth for consumers. The strategists also favor consumer experience stocks, which they see as cheap and exposed to strong secular growth.
Snider's team noted that exposure to consumer discretionary companies is at multiyear lows among Wall Street hedge funds, which have also been trimming exposure to AI-related stocks. Goldman's basket of low-income consumer discretionary stocks has rallied 7% since October.
The strategists also suggested defensive industry stocks with "quality" attributes. Their screen lists 23 Russell 1000 stocks from healthcare and consumer staples, including Tyson Foods and CVS Health, that could outperform if the market continues to pare back on growth.
Slower earnings growth ahead
The S&P 500, which is dominated by big tech companies, last week saw its worst weekly return since late June. Goldman said rising worries about the cost and availability of funding have pushed investors to cut exposure to AI companies and price in slower earnings growth.
Goldman's baseline forecast calls for S&P 500 earnings-per-share growth of 36% in 2026, slowing to 11% in 2027. The bank estimates that AI capex currently contributes about half of that growth, which should fade in 2027 as capex growth slows and depreciation expenses build.
Early reads on the third quarter support that view, the strategists said. During the last four quarters, 64% of S&P 500 firms beat EPS consensus forecasts, but just 53% have done so in the third-quarter reporting season now getting underway.
Source: MarketWatch
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