Summary: Goldman Sachs has flagged a rapid increase in momentum linked to the artificial intelligence-driven rally as a potential precursor to softer returns for U.S. equities in the months ahead. The bank highlights the narrowness of recent gains, the unusual speed of momentum’s advance, and historical episodes dating back to 1980 that show similar patterns often end with momentum peaking and reversing.
Goldman Sachs pointed to a concentrated run-up in a handful of stocks as the engine behind the market’s recent strength. The S&P 500 recorded 14 new record highs over the past month and is up 10% year-to-date, yet technology stocks were responsible for 85% of the index’s gains. Stripping out technology, the S&P 500 returned just 3% over the same period, underscoring the narrow character of the rally.
The bank noted that its Momentum factor climbed 25% over the last three months - one of the most abrupt three-month increases on record. At the same time, hedge funds’ gross leverage and net exposure to momentum strategies were cited as being close to five-year highs, a configuration Goldman views as noteworthy for potential market dynamics.
“Many investors described the equity market as 'one big trade' rather than 'a market of stocks,'” the bank said, reflecting the concentration of gains.
Goldman emphasized that the future path of the market will hinge on two main variables: the macroeconomic backdrop and the trajectory of AI investment. The bank outlined scenarios that could prompt a momentum reversal - a reduction in AI spending expectations or a severe weakening of macroeconomic conditions could trigger a downshift, while a sharp improvement that allows currently lagging stocks to catch up could also end the momentum run.
Looking at history, Goldman identified 11 episodes since 1980 in which momentum rallied by 20% or more over a three-month span. In most of those cases, momentum extended its advance for roughly another month before reaching a peak and then reversing lower. The bank singled out mid-1998, late 1999, mid-2015 and late 2021 as examples of comparable episodes in which sharp momentum advances occurred while the S&P 500 was near an all-time high, and were followed by relatively soft equity returns over the subsequent months.
There is, however, a notable difference in the current environment. The recent rally has been accompanied by rising earnings expectations on a bottom-up basis: consensus forecasts for S&P 500 earnings per share in 2026 and 2027 have each increased by 8% year-to-date. Goldman attributes those upward revisions mainly to expectations for AI-related capital expenditures and to higher energy prices.
For investors seeking areas less exposed to the AI-driven momentum trade, Goldman recommended stocks that combine positive earnings revisions with low sensitivity to both AI and economic-growth signals. The bank identified Consumer Staples as the sector with the least exposure to either theme.
Key points
- The S&P 500 logged 14 record highs in the past month and is up 10% year-to-date, while non-tech S&P 500 gains were 3% YTD.
- Goldman’s Momentum factor rose 25% over three months; hedge fund leverage and net momentum exposure sit near five-year highs.
- Consensus bottom-up EPS forecasts for 2026 and 2027 rose 8% year-to-date, largely due to AI capex expectations and higher energy prices.
Risks and uncertainties
- A downturn in expectations for AI spending could trigger a rapid momentum reversal - affecting technology and AI-sensitive sectors most directly.
- A severe deterioration in the macroeconomic outlook could precipitate weaker equity returns, with broad market implications beyond the tech-led advance.
- A sharp improvement that allows lagging stocks to catch up could also end the current momentum move, altering sector leadership.
Impacted sectors: Technology (primary), Energy (via earnings revisions), Consumer Staples (positioned as lower exposure).