Goldman Sachs Group, Inc. warns: S&P 500 hits new record high with "top-heavy" trend, as Micron (MU.US) and Exxon Mobil Corporation (XOM.US) contribute to sixty percent of profit increase.

Goldman Sachs Group, Inc. strategists recently pointed out in a report that analysts have mainly raised earnings expectations for companies in a few sectors, leading to a structural rally that has pushed the S&P 500 index to record highs. Led by Ben Snider, the strategist team stated that while consensus EPS estimates for S&P 500 component stocks for the next two years are 4% higher than in January, this increase is mainly driven by the energy and information technology sectors. Tensions in the Middle East have boosted energy prices, while investment in the artificial intelligence (AI) sector has reignited market optimism, becoming a core driver of the rise in technology stocks. The team mentioned that since the outbreak of the Iran conflict, only two companies, Micron Technology, Inc. (MU.US) and Exxon Mobil Corporation (XOM.US), have together contributed over 60% of the consensus increase in earnings expectations for the S&P 500 index for 2026. However, half of the index's component stocks have not seen any adjustments in their 2026 earnings expectations over the past few months. Snider said, "In recent weeks, earnings expectations for the S&P 500 index have been raised, largely driven by just a few individual stocks." Last Friday, the US benchmark index closed at record highs and posted its best weekly performance since 2026. However, Goldman Sachs Group, Inc. strategists believe that this rally, like the earnings upgrades, lacks broad support. The market breadth indicator tracked by the team has fallen to levels not seen in decades, only slightly higher than during the dot-com bubble era and mid-2023. The Goldman Sachs Group, Inc. team believes that the key test for the current market is whether the core stage of the first-quarter earnings season can broaden the scope of earnings upgrades and expand the market rally. Progress in the situation in the Hormuz Strait is particularly critical for pro-cyclical sectors linked to the economic cycle. Compiled data shows that large-cap US companies have had a strong start to the earnings season, with approximately 81% of companies exceeding market expectations for earnings per share. Last week, earnings releases were dominated by Financial Institutions, Inc., with record trading revenues for JPMorgan Chase (JPM.US), Bank of America Corp (BAC.US), Citigroup (C.US), and Goldman Sachs Group, Inc. (GS.US). Goldman Sachs Group, Inc. forecasts a 12% increase in earnings per share for the S&P 500 index this year, which is in line with overall predictions from Wall Street strategists but lower than the market's bottom-up expectations of 18%. The strategists noted that there are risks in both directions, but overall, the bias is towards the upside. Downside pressures mainly come from weakening consumer demand and rising input costs due to conflicts like the one involving GEO Group Inc; while the upside potential is related to AI investments and productivity improvements.