Goldman Sachs: "U.S. Stock Market Rally to Continue Through 2026... S&P 500 to Reach 7,600 by Year-End"

Cyclical Stocks Expected to Lead in the First Half
AI Investment Boom and M&A Surge to Shape the Market

Goldman Sachs has forecast that the U.S. stock market will continue its bullish trend this year, predicting that the S&P 500 index could reach the 7,600 level by year-end. However, the firm expects the pace of gains to slow as the previously overheated rally subsides. In the first half of the year, cyclical stocks are expected to lead the market, while expanded investments in artificial intelligence (AI) and a boom in mergers and acquisitions (M&A) are cited as key variables shaping the direction of the stock market.

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Goldman Sachs presented this outlook for the U.S. stock market in a client report released on January 6 (local time).

U.S. business media outlet Business Insider reported on the same day, "Optimism has dominated Wall Street for some time," adding, "Despite the breathless rally since 2023, most experts remain bullish on the stock market outlook." In fact, on this day, the Dow Jones Industrial Average closed at an all-time high of 49,462.08, up 484.9 points (0.99%) from the previous session. The S&P 500 index, which is weighted toward large-cap stocks, also set a new record high, rising 42.77 points (0.62%) to close at 6,944.82. The tech-heavy Nasdaq index ended the session at 23,547.173, up 151.351 points (0.65%).

Goldman Sachs believes that the stock market will remain strong throughout this year, but that the recent sharp rally will moderate to some extent. The year-end target for the S&P 500 is around 7,600, indicating about 12% upside potential for the year. The firm expects robust economic growth, productivity improvements driven by the adoption of AI, and solid profits from large corporations to underpin this rise.

In the first half of the year, cyclical stocks are expected to lead the market. Goldman Sachs analyzed that the U.S. economic recovery, normalization of economic activity after the government shutdown, fiscal stimulus from the Donald Trump administration, looser financial conditions, and the limited impact of tariffs will all work in favor of cyclical sectors. As the economic recovery takes hold and consumption and investment pick up in earnest, there is growing anticipation that sectors sensitive to economic cycles will see their performance improve rapidly. Goldman Sachs highlighted stocks related to middle-class consumption and non-residential construction as promising sectors.

The firm projected that AI infrastructure investment by so-called hyperscalers (large-scale cloud service providers) will surge to $539 billion in 2026, up about 36% from the previous year. In 2027, this figure is expected to expand further to $629 billion. However, Goldman Sachs noted that as spending and debt increase, there will be mounting pressure to generate returns that justify these investments. International media outlets such as Reuters have also pointed out that if spending and debt burdens grow without tangible proof of returns from AI investments, only the financial risks may become more pronounced.

Goldman Sachs assessed that 2026 could mark the beginning of the full-fledged "profitability verification phase (Phase 3)" for AI stocks. The firm explained that it is no longer possible for stock prices to be supported by expectations alone, and that companies have now entered a stage where concrete results, such as actual profit improvements, must be demonstrated with numbers. Goldman Sachs identified the following characteristics of this phase: a slowdown in infrastructure-focused spending, demands for proof of real profit improvements from AI adoption, and a full-scale sorting of new AI beneficiaries.

The total value of completed M&A transactions is expected to increase by 15% year-on-year. Last year, the value of large M&A deals in the U.S. exceeded $1.9 trillion, a 75% increase from the previous year. Goldman Sachs expects M&A activity to remain strong this year, alongside a recovery in the initial public offering (IPO) market. This is interpreted as a result of companies' enhanced acquisition capacity due to rising stock prices and stable interest rates, combined with strategic demand to quickly secure new businesses such as AI.