LIVE MARKETS-With earnings expected to slow, Goldman strategists eye value in growth

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WITH EARNINGS EXPECTED TO SLOW, GOLDMAN STRATEGISTS EYE VALUE IN GROWTH

While describing 2026 as "the year of strong earnings," Goldman Sachs is preparing investors for sharply slower growth in 2027, but its strategists say in their latest research report that they're expecting equities to continue to rise, albeit with some big bumps along the way.

The report, led by Peter Oppenheimer, the firm's chief global equity strategist, pins slowing growth on issues such as a likely peak in AI capital spending and a still-elevated cost of capital.

In the US, they estimate that earnings growth will sink to 11% in 2027 from an estimated 36% in 2026 for S&P 500 .SPX companies. In Europe, they see growth dropping to 7% next year from an estimated 18% in 2026 for the STOXX 600 index .STOXX. And, in emerging markets, they expect growth to tumble to 26% from a jaw-dropping 66% estimate for 2026 for the MSCI emerging markets index .MSCIEF.

The change, as per Goldman Sachs Global Investment Research, looks even more dramatic in graphical form:

With that in mind, the strategists expect "investors to seek companies that can sustain growth as it becomes more scarce."

Since equities have de-rated sharply already and valuations are more attractive, with the prospect of slower nominal economic and earnings growth, lower bond yields, inflation and oil prices, Oppenheimer says he expects "equities to continue to rise, but with high volatility."

Looking to recent weeks, he notes that the fall in equities, due to concerns around AI, "has rapidly priced in the prospect of weaker growth rates, and the sharp sector and factor rotations within equities have pushed up the valuation of Defensive and Value parts of the market."

With that, the group says it is focused on balancing growth with selective defensives and beneficiaries of lower bond yields.

For example, they point to attractive opportunities in long-duration growth companies, "which should become more valuable as growth rates slow, particularly US Hyperscalers, which continue to enjoy strong (although slower) earnings growth and balance sheets."

"While forecast returns are highest in Asia, we focus on risk-adjusted returns and are overweight the US and Japan, neutral in Asia and EM, and underweight Europe, reflecting relative growth, profitability and valuation opportunities," the strategists said.

But they caution that risks "are becoming more two-sided" as bonds, oil prices and AI capex shifts could all increase volatility.

(Sinéad Carew)

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