Goldman Sachs partner John Flood said strong corporate earnings are giving U.S. equity bulls their clearest support, and argued that the S&P 500 could post another record high this year as market positioning becomes cleaner. In his view, the central reason is earnings.
S&P 500 earnings growth is running well ahead of expectations
According to Goldman Sachs, the S&P 500’s second-quarter earnings-per-share growth is tracking at 45% year over year, far above the 22% consensus forecast that was in place at the start of the quarter.
Goldman said 19 percentage points of that growth came from “other income” related to equity investments at Alphabet and Amazon, which together totaled about $151 billion. Microsoft also contributed about $3 billion of similar income. Excluding those non-core sources, S&P 500 EPS growth still comes to 26%, faster than in the first quarter and the strongest pace since 2021.
At the single-stock level, the median EPS growth rate for S&P 500 constituents is tracking at 12%, above the 9% consensus estimate from the start of the quarter. That suggests the earnings improvement is fairly broad rather than being driven only by a small group of mega-cap technology names.
Forward earnings estimates for 2027 are being revised higher
Goldman said the strong second-quarter results did more than reflect past operating performance. They also pushed analysts to raise forward earnings forecasts. Since the start of the third quarter, consensus expectations for 2027 S&P 500 EPS have increased by about 1%, with the largest upward revisions in the energy and financial sectors.
Goldman added that the breadth of revisions remains positive, with the number of companies receiving upward earnings revisions continuing to exceed those seeing downward revisions. The bank sees that broad-based pattern as an important foundation for current valuations.
Lower positioning and leverage leave more room on the upside
On sentiment and positioning, Goldman’s gauge has fallen to the 53rd percentile from earlier elevated levels. Most fast-moving positioning indicators have turned bearish. Futures positioning is still high, but no longer extreme. The call-to-put ratio has declined, investor surveys show weaker optimism, and actively managed funds have trimmed their U.S. equity exposure, with the NAAIM index at 79.7.
Deleveraging has been especially visible among hedge funds. Goldman said gross leverage has given back half of this year’s increase, while net leverage is down from the start of the year. Retail leverage is also cooling. Margin balances in South Korea have retreated from record highs, margin buying in Japan has started to pull back from its highest level since 1990, and U.S. investors have slowed their buying of semiconductor shares.
Flood said this “de-bubbling” in positioning has left the market in a healthier structure, reduced potential selling pressure, and created more favorable conditions for the index to move higher.
Goldman points to relative valuation and the AI cycle
In a cross-market comparison, Goldman Sachs data shows U.S. equities are relatively “cheap” versus other major markets.
Flood also said the main benefits of the AI supercycle have not been fully realized yet. The world’s largest technology companies are still increasing capital spending, which in turn is expanding both the breadth and depth of earnings improvement.
Seasonal risk could still affect the timing
Goldman also flagged a seasonal risk. In 13 midterm election years since 1974, the median return for the S&P 500 from early August to Election Day was 0%. That means that even if earnings fundamentals stay strong, the timing of Flood’s call for another record high this year remains uncertain.
Goldman’s conclusion was straightforward: the earnings picture is giving bulls meaningful support, but whether that support can last remains the key variable.