Odd Lots• Dec 29, 2025• 47:39Interview

Goldman's Hatzius and Snider on the Outlook for 2026 | Odd Lots

From Odd Lots

Jan Hatzius, Ben Snider•Chief Economist and Head of Research, Goldman Sachs; Chief U.S. Equity Strategist, Goldman Sachs

Executive Summary

Goldman Sachs presents a bullish outlook for 2026, forecasting 2.6% real GDP growth and an S&P 500 target of 7600.
An anticipated AI-driven productivity boom is expected to support strong economic growth without causing unemployment to fall, keeping it flat at 4%.
Despite high market concentration, corporate earnings growth is broad-based, with the median S&P 500 company showing solid performance, suggesting the rally is not solely a mega-cap phenomenon.
The Federal Reserve is expected to cut rates twice in 2026 (March and June) to normalize policy, which should provide a tailwind for equities.

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Concerns Raised

Unprecedented level of market concentration in the top 10 S&P 500 stocks.
Potential for AI to increase short-term frictional unemployment as the economy adapts.
Impact of tariffs, which contributed an estimated 50 basis points to core PCE inflation in 2025.
Data gaps created by the 2025 government shutdown, which complicate economic analysis.

Opportunities Identified

Significant productivity boost from AI is expected to accelerate, driving corporate earnings and GDP growth.
Two anticipated Federal Reserve rate cuts in 2026 could support higher equity valuations.
Strong, broad-based corporate earnings growth beyond just the mega-cap tech stocks.
The potential to identify long-term productivity winners as the AI narrative shifts from infrastructure to application.

Key Themes

AI's Productivity Paradox

While AI investment has been massive, its measured impact on GDP has been minimal so far, largely due to imports. However, Goldman Sachs anticipates a significant productivity boost from AI in the coming years, factoring it into their S&P 500 earnings forecast for the first time.

This highlights the lag between technological investment and realized economic benefits, suggesting the largest productivity gains from AI are still ahead, which could reshape corporate profitability and economic growth.

Concentration vs. Broad Market Strength

The top 10 stocks now represent over 40% of the S&P 500's market cap, a level of concentration without historical precedent. Despite this, the underlying market (the "S&P 490") has also performed well, driven by strong, double-digit earnings growth across the board.

This challenges the narrative of a market rally driven solely by a few tech giants and indicates a healthier, more fundamentally-driven bull market than is often perceived.

The 'Soft Landing' Macro Outlook

The forecast combines strong GDP growth (2.6%) with flat unemployment (4%) and moderating inflation, allowing for Fed rate cuts. This optimistic scenario is predicated on accelerating productivity growth that accommodates economic expansion without overheating the labor market.

This 'goldilocks' forecast suggests a favorable environment for risk assets, where economic strength does not necessitate restrictive monetary policy.

Rational Exuberance in Tech

Unlike the dot-com bubble, the current market enthusiasm for AI is largely tied to near-term, tangible earnings from infrastructure players like semiconductor companies. Investors are showing discipline by not yet paying for speculative, long-term AI winners, a key difference from the late 1990s.

This suggests that while valuations are high, they are more grounded in current fundamentals, potentially making the market less susceptible to a speculative bust compared to previous tech cycles.

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Topics

S&P 500 forecast AI productivity Federal Reserve rate cuts market concentration corporate earnings GDP growth unemployment inflation equity strategy macroeconomics Goldman Sachs dot-com bubble tariffs investor sentiment

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