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Goldman Sachs said the market may be volatile due to stagflation pricing and the risk of rising yields on U.S. government bonds. However, weaker tariff impacts, lower energy prices, and cost reductions driven by AI will ease inflation. Economic growth may slow, but companies’ earnings resilience is expected to remain strong. If the market enters a “Goldilocks” scenario, enthusiasm for AI investment may pick up again, and U.S. stocks could rise earlier ahead of the end of the year. The analysis also indicates that AI-related assets are recovering, the risk of higher-than-expected growth is declining, and core earnings remain strong—suggesting the market could shift from stagflation to Goldilocks.
In a note from BlockBeats dated September 27, Goldman Sachs said the market may have already priced in too much risk of stagflation and rising yields on U.S. Treasuries. As tariff effects fade, energy prices could fall, and AI-driven cost reductions are expected to reduce pressure, inflation in the U.S. is likely to cool. Meanwhile, although economic growth may slow, companies’ core earnings are still expected to be resilient. Under this “Goldilocks” scenario, optimism about AI investment may return, and the U.S. stock market rally later this year may not need to wait until after the U.S. midterm elections to begin.
Goldman Sachs partner Mark Wilson said recent market movements show related signs: AI-related assets have once again attracted investor interest after consolidating for several months. Goldman Sachs economist Jan Hatzius believes the risk of higher-than-expected U.S. economic growth is moderating. As the effects of fiscal stimulus wane and gasoline prices and mortgage rates rise, the pace of economic growth is likely to slow further, which would also limit central banks’ room to keep raising interest rates.
Ben Snider, head of Goldman Sachs’ U.S. strategy team, argued that although some industries experience “excess earnings” temporarily, companies’ core earnings may still maintain strong growth at least through the end of 2027. Based on this, Goldman Sachs believes that if inflation continues to fall, economic growth slows moderately, and company earnings remain resilient, the market may gradually shift from its prior stagflation trade toward a “Goldilocks” scenario.