Goldman Sachs
It tells clients the AI-driven market unwind is not over and urges a shift out of the Magnificent Seven into defensive stocks, while chief economist Jan Hatzius says the AI wealth effect has peaked.
Goldman Sachs says the AI-driven market unwind is not over. Derivatives strategist Brian Garrett says the Nasdaq 100's 1.4% drop Thursday and 3.5% slide Friday, after an earlier bounce, forced investors into portfolio re-underwriting and wrecked the assumption the unwind was finished. Chief economist Jan Hatzius says the AI wealth effect has peaked, with oil, yields and layoffs as headwinds into 2027.
Its economists, alongside Apollo's, warn stalling corporate AI token spending amid steep price declines may signal a bubble, with falling returns on invested capital hitting hyperscalers if compute demand fails to outpace token-cost deflation. The bank also flags household demand for U.S. equities as increasingly vulnerable, with a record 55% of financial assets in stocks, though it still backs 2027 forecasts if the labor market holds and yields decline modestly.
The advice is defensive. Strategists led by Ben Snider see S&P 500 earnings growth slowing from 29% in 2026 to 18% in 2027, call narrow breadth the key risk and recommend 23 consumer-staples and health-care stocks, urging a shift out of the Magnificent Seven after its $2.3 trillion June loss, with Apple held out as the hedge within the Magnificent Seven for its comparatively low AI capital spending. The commodities team wants a third asset class in the 60/40 mix.
The house is not unanimous. Strategist Tony Pasquariello pushed back on the idea the market is one concentrated trade, asking whether breadth is so bad, though his note referenced the dot-com bubble twice.
Abroad, it warns China's property bust is deeper than thought and risks exporting deflation, and says Petrobras may need a 50% diesel hike after Brazil's election. At home, it sees mortgage lock-in holding US home sales to 3.9 million in 2027, 26% below 2019.
On their plate
Derivatives strategist Brian Garrett says the Nasdaq 100's 140-basis-point drop Thursday and 350-basis-point slide Friday, after an earlier bounce, forced investors into portfolio re-underwriting and wrecked the assumption that the AI-driven market unwind was over. Strategist Tony Pasquariello pushed back on the idea the market has become a single concentrated trade, asking whether breadth is really so bad, though his note referenced the dot-com bubble twice. Its projection of hyperscaler capital investment expanding toward $1.2 trillion by 2027 anchors the case that the semiconductor sell-off is a valuation gap, with sector price-to-earnings ratios below the S&P 500 despite record forward margins, rather than a repeat of 2001, and abrupt customer budget cancellations stand out as the main structural risk.
Chief economist Jan Hatzius says the AI-driven wealth effect has peaked after adding 0.4 percentage points to U.S. consumer spending growth over the past year, roughly 0.25% of GDP, and flags rising oil prices, higher yields and more layoffs as headwinds into 2027. Its economists, alongside Apollo's, warn that stalling corporate AI token spending amid steep price declines may signal a bubble, citing Anthropic's realized token price falling from more than $1.70 to $0.83, with falling returns on invested capital hitting hyperscalers like Amazon, Alphabet, Meta, Microsoft and Oracle if compute demand fails to outpace token-cost deflation.
The bank warns household demand for U.S. equities is increasingly vulnerable to higher rates and AI-driven disruption. Households bought $840 billion of stocks in the first half of 2026 and hold a record 55% of financial assets in equities, with the top 10% controlling 87% of those assets. It still backs supportive 2027 forecasts if the labor market holds and yields decline modestly.
Strategists led by Ben Snider see S&P 500 earnings growth slowing from 29% in 2026 to 18% in 2027, call narrow breadth the key risk, advise against heavy momentum exposure and recommend 23 consumer-staples and health-care stocks with high free-cash-flow yield and low volatility, seeing upside in consumer-facing laggards on faster income growth for the lowest earners. They also advise a shift out of the Magnificent Seven into lagging sectors after the group lost a combined $2.3 trillion in market value in June, with Apple held out as the hedge within the seven because of its comparatively low AI capital spending. The commodities team urges adding a third asset class to the traditional 60/40 portfolio, citing the BCOM commodities basket's 36% year-to-date return against a 13% S&P 500 gain, with BCOM Energy up 98% and oil products up 136%.
Its economists say China's six-year property bust is deeper than previously thought, with investment down 20% year over year despite record-low bond yields, and warn the export-led response risks exporting deflation and denting global earnings. Analysts Bruno Amorim and Alberto Ramos say Petrobras may need a roughly 50% diesel price hike after Brazil's election, arguing the government cannot control tanker transport costs even if it caps retail prices, and that a sharp rise would stoke Brazilian inflation. At home, it forecasts only 3.9 million existing-home sales in 2027, 26% below 2019 levels, blaming the mortgage-rate lock-in effect, with September pending sales at a record low and 30-year mortgage rates up from 6.8% to roughly 7.4% to 7.6%.
