Goldman Sachs warns: Three engines driving U.S. stocks are losing steam; 2027 may bring the biggest stock supply shock in 26 years
【Goldman Sachs warns: Three engines driving U.S. stocks are losing steam; 2027 may bring the biggest stock supply shock in 26 years】CoinChain Express reports: On Nov. 9, Tony Pasquariello, Goldman Sachs’ global head of hedge fund coverage, warned that the three forces behind the U.S. stock market’s gains over the past four years—earnings growth, fund flows, and the AI narrative—are all showing signs of marginal deterioration. Although the S&P 500 may still make one final push higher by year-end, the market could face its largest net stock supply shock since the dot-com bubble burst in 2000 in 2027, while index volatility may also trend upward.
Pasquariello noted that S&P 500 earnings growth reached 33% in the second quarter and is expected to hit 35% in the third, but growth momentum may be peaking. Goldman Sachs expects S&P 500 earnings per share (EPS) to grow by around 18% in 2027, though changes in AI capital spending could pose significant downside risks.
Funding conditions are also under pressure. Goldman Sachs’ prime brokerage data shows that over the past 20 trading days, hedge funds have sold global AI stocks at the fastest pace in more than five years, deviating from the historical average by more than three standard deviations. Weaker corporate buybacks, reduced buying by overseas investors, and CTA strategies joining the selling have further diminished the market’s ability to absorb shares.
Goldman Sachs expects major IPOs by companies such as SpaceX and Anthropic, along with tech giants directing more cash flow toward AI infrastructure rather than stock buybacks, to collectively push net U.S. stock supply in 2027 to its highest level since 2000.
The AI narrative is also starting to diverge. The market expects capital spending growth by tech giants to fall from 96% this year to 44% next year, while hyperscalers posted a net free cash flow outflow of $31 billion in the third quarter. Goldman Sachs believes the market is shifting from primarily pricing in the growth potential of AI investment to also assessing uncertainty around the sustainability of capital spending and the returns on investment.
On valuations, the Nasdaq 100’s forward price-to-earnings ratio has fallen to 18.4, its lowest level since 2020. However, Pasquariello cited the views of two veteran investors who said that equities still look too optimistic compared with credit markets, and that pressure on AI-related high-yield bonds may indicate credit markets are the first to reflect financing risks.
Another Goldman Sachs strategist, Rich Privorotsky, believes the current pullback is closer to the 1998 liquidity event than to the bursting of the dot-com bubble in 2000, but acknowledged the unsettling similarities between the scale and uncertain returns of today’s AI investment and those of 2000.
【Goldman Sachs warns: Three engines driving U.S. stocks are losing steam; 2027 may bring the biggest stock supply shock in 26 years】CoinChain Express reports: On Nov. 9, Tony Pasquariello, Goldman Sachs’ global head of hedge fund coverage, warned that the three forces behind the U.S. stock market’s gains over the past four years—earnings growth, fund flows, and the AI narrative—are all showing signs of marginal deterioration. Although the S&P 500 may still make one final push higher by year-end, the market could face its largest net stock supply shock since the dot-com bubble burst in 2000 in 2027, while index volatility may also trend upward.
Pasquariello noted that S&P 500 earnings growth reached 33% in the second quarter and is expected to hit 35% in the third, but growth momentum may be peaking. Goldman Sachs expects S&P 500 earnings per share (EPS) to grow by around 18% in 2027, though changes in AI capital spending could pose significant downside risks.
Funding conditions are also under pressure. Goldman Sachs’ prime brokerage data shows that over the past 20 trading days, hedge funds have sold global AI stocks at the fastest pace in more than five years, deviating from the historical average by more than three standard deviations. Weaker corporate buybacks, reduced buying by overseas investors, and CTA strategies joining the selling have further diminished the market’s ability to absorb shares.
Goldman Sachs expects major IPOs by companies such as SpaceX and Anthropic, along with tech giants directing more cash flow toward AI infrastructure rather than stock buybacks, to collectively push net U.S. stock supply in 2027 to its highest level since 2000.
The AI narrative is also starting to diverge. The market expects capital spending growth by tech giants to fall from 96% this year to 44% next year, while hyperscalers posted a net free cash flow outflow of $31 billion in the third quarter. Goldman Sachs believes the market is shifting from primarily pricing in the growth potential of AI investment to also assessing uncertainty around the sustainability of capital spending and the returns on investment.
On valuations, the Nasdaq 100’s forward price-to-earnings ratio has fallen to 18.4, its lowest level since 2020. However, Pasquariello cited the views of two veteran investors who said that equities still look too optimistic compared with credit markets, and that pressure on AI-related high-yield bonds may indicate credit markets are the first to reflect financing risks.
Another Goldman Sachs strategist, Rich Privorotsky, believes the current pullback is closer to the 1998 liquidity event than to the bursting of the dot-com bubble in 2000, but acknowledged the unsettling similarities between the scale and uncertain returns of today’s AI investment and those of 2000.