Goldman pushes back on S&P 500 earnings bubble fears as funds pile in
Weekly inflows into US equity funds reached nearly $64 billion, the largest in three months per Bank of America citing EPFR Global data, even as BofA strategists Jared Woodard and Michael Hartnett warned that…
Key takeaways
- Weekly inflows into US equity funds reached nearly $64 billion, the largest in three months, according to Bank of America citing EPFR Global data.
- Goldman Sachs strategist Ben Snider argued that fears of an S&P 500 earnings bubble are misplaced, citing AI capital spending and the economic backdrop supporting profitability.
- S&P 500 profits grew roughly 30% in each of the first two quarters, per Bloomberg Intelligence, among the strongest on record.
- Goldman forecasts more cautious 2027 profit growth of 11%, versus consensus expectations of 19% for 2027 and 17% for 2028.
- Snider's call is for the S&P 500 to rise 14% to about 8,700, driven by earnings growth rather than multiple expansion.
Weekly inflows into US equity funds reached nearly $64 billion, the largest in three months per Bank of America citing EPFR Global data, even as BofA strategists Jared Woodard and Michael Hartnett warned that positioning is already too bullish for the profit growth trajectory ahead. Into that setup, Goldman Sachs strategist Ben Snider published a note arguing that fears of an earnings bubble in the S&P 500 are misplaced, with AI capital spending and the broader economic backdrop holding up current profitability.
Profits at S&P 500 companies grew roughly 30% in each of the first two quarters, Bloomberg Intelligence data show, among the strongest showings on record. Full-year expectations are running at their highest since the post-Covid rebound in 2021. Snider's team acknowledged the pace suggests companies may be over-earning as AI investments surge, but the Goldman view is that growth decelerates rather than collapses.
Consensus, per Bloomberg Intelligence, expects profit growth of 19% in 2027 and 17% in 2028. Goldman's forecast is more cautious at 11% for next year. The firm expects the lift from AI-related investment to begin fading in 2027 even as capital expenditure continues to climb, and margin expansion at semiconductor-related companies is likely to slow in that same window, Snider said. He wrote in the note that "market pricing embeds an outlook for continued earnings growth but healthy skepticism regarding the sustainability of current profitability."
US stocks have struggled since hitting a record in August, weighed by inflation concerns, and S&P 500 valuations have compressed even as analysts raised earnings estimates. Snider was among the more bullish strategists entering the year, correctly predicting that strong earnings and AI adoption would absorb the drag from higher oil prices and rate hikes. His current call is for the S&P 500 to advance 14% to approximately 8,700, driven by earnings growth rather than multiple expansion.
The BofA positioning warning is the friction point between the two views. Woodard and Hartnett argue that current exposure levels are too high for what even Goldman agrees will be a slower earnings year. Snider's 8,700 S&P 500 target is the level the setup is pricing toward.