Key Takeaways:
Goldman Sachs' top equity strategist warns the recent market correction marks the start of greater volatility, not the end.
The S&P 500 faces more turbulence after its recent correction marked the start of a volatile period, Goldman Sachs' Ben Snider said, maintaining his year-end 8,000 target.
"The market's 99th-percentile rally over two months, extreme narrowing of breadth and elevated leverage from retail margin and leveraged ETFs create a structural backdrop for sustained volatility," Snider, chief US equity strategist at Goldman Sachs, said in a report.
The S&P 500 has fallen about 3% from its record high after a selloff triggered by strong employment data, renewed questions about AI ecosystem economics and reports of equity financing by hyperscalers. The index closed at 7,409.60 Wednesday, with the VIX jumping 12% to 22.30. AI infrastructure stocks have contributed roughly half of this year's S&P 500 earnings-per-share growth, with the group returning 34% year-to-date versus 2% for the rest of the index.
The warning from one of Wall Street's most closely watched strategists comes as the S&P 500 trades at 21 times forward earnings, in the 85th percentile since 1980, with the equity risk premium turning negative for the first time since the dot-com era. Snider said earnings growth — projected at 24% for 2026 and 13% for 2027 — remains the bull market's fundamental driver, but the combination of concentrated leadership and record leverage leaves the market vulnerable to shocks.
Goldman's sentiment indicator has fallen to +0.2, the lowest since early April, with median euphoria metrics sitting at the 86th percentile historically — elevated but still below the extremes of 2000 and 2021. Hedge fund and mutual fund positioning data show continued rotation into AI infrastructure names, with 33% of active US equity mutual funds beating their benchmarks year-to-date and long-short equity hedge funds averaging 9% returns.
Snider identified three structural risks that could amplify the next downturn. The Strait of Hormuz represents the most immediate macro threat, capable of simultaneously hitting corporate profits and limiting the Federal Reserve's ability to ease. On AI, the sustainability of returns on the roughly $750 billion in expected hyperscaler capital expenditure this year — up 84% from 2025 — remains unproven. And record US equity issuance, while not yet a threat to the bull market given roughly $1 trillion in share buybacks, will face a more challenging supply-demand balance in 2027 as lockup periods expire.
This article is for informational purposes only and does not constitute investment advice.
