Goldman Sachs strategists have issued a warning about the challenging path ahead for the U.S. stock market. However, they believe that the current market situation will not mirror the crashes of the 1920s or 1987.
High Valuations Raise Bubble Fears
Led by Ben Snider, Goldman Sachs strategists outlined several concerning factors, including high valuations, extreme market concentration, and recent strong returns. These characteristics are reminiscent of previous overextended markets, such as the 1920s, the ‘Nifty Fifty’ era in the early 1970s, and the 1987 bull run before Black Monday, reported MarketWatch.
Despite the similarities, the strategists noted that several hallmarks of overheated markets are absent. Speculative trading remains well below levels seen in 2000 or 2021, short interest is elevated, equity inflows are muted, and IPO activity was relatively modest last year. Corporate leverage has increased, but it is still low by historical standards.
The analysts pointed out that mega-cap hyperscalers like Amazon.com (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Meta Inc. (NASDAQ:META), and Microsoft (NASDAQ:MSFT) have climbed alongside rising earnings estimates, with valuations staying broadly aligned to near-term earnings—unlike the valuation excesses seen in the late 1990s.
The strategists flagged possible macro risks, including a slowdown in growth or a more hawkish turn in the rate outlook, though they see both as unlikely. They added that the supportive macro backdrop could weaken later in the year as fiscal and monetary tailwinds diminish and AI-driven disruption intensifies.
Mixed Analyst Predictions For 2026
Notably, Tom Lee, the head of research at Fundstrat Global Advisors, has forecasted a significant rise in the S&P 500, while also acknowledging potential market volatility. According to Lee, small caps could be winners this year.
Meanwhile, veteran investor and CIO Louis Navellier has warned against chasing the recent “junk rally” in low-quality stocks, advising investors to focus on stocks with strong earnings growth as the new financial year begins.
Price Action: Over the past year, Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) and Vanguard S&P 500 ETF (NYSE:VOO) climbed 21.05% and 17.51%, respectively, as per data from Benzinga Pro.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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