The trajectory of both momentum and the broader S&P 500 would be dictated by the macroeconomic backdrop and the outlook for AI investment, Goldman Sachs said in a research report released this week. The brokerage warned that while the momentum could extend for another month, sharp rallies near market highs had historically led to below-average returns in the following months.

It added that a downturn in AI capex or a spike in equity and bond volatility could trigger a "catch down" reversal, while an improved macro outlook might instead spark a catch-up rally in laggards. Goldman Sachs noted that the strength of the AI trade had lifted the S&P 500 to 14 new highs in the past month, even as market breadth narrowed and Momentum surged.

The index had returned 10 per cent year-to-date, with technology contributing 85 per cent of that gain while the S&P 500 excluding technology rose just 3 per cent.The rally had also driven a 25 per cent return in the Momentum factor over the past three months, one of its sharpest upswings on record. "With AI and momentum moving hand in hand and driving the direction of the S&P 500, many investors have expressed the view that the equity market today is 'one big trade' rather than 'a market of stocks,'" Goldman Sachs wrote.

The brokerage said similar sharp Momentum rallies since 1980 had typically extended for another month before peaking and turning lower. It pointed to mid-1998, late 1999, mid-2015 and late 2021 as episodes where Momentum gains near market highs were followed by soft equity returns in the near term.In contrast, Goldman Sachs observed that some of the sharpest Momentum rallies during downturns, such as in September 1990 and March 2020, had preceded strong average S&P 500 returns in the subsequent 3-6 months.

Much of the recent market momentum had been supported by rising earnings estimates, Goldman Sachs said. Bottom-up consensus for S&P 500 EPS in 2026 and 2027 had each risen by 8 per cent YTD, with most of the revisions tied to higher AI capex spending and elevated energy prices. "Excluding AI infrastructure and Energy companies, S&P 500 2027 EPS estimates have been flat YTD," the brokerage noted. Still, EPS revision breadth had been positive across every sector in the past month, and stocks with the strongest revisions had generally outperformed.

Goldman Sachs, referring to its recent conversations with portfolio managers, said the main challenge was finding investment opportunities not tied to a view on AI. It advised investors to focus on equities with fundamental support from earnings growth and revisions, regardless of whether those earnings were driven by AI or other tailwinds.

At a sector level, Consumer Staples screened as having the least exposure to AI or Momentum. The brokerage also highlighted an "Insensitive Portfolio" of companies with positive recent EPS revisions and the lowest share price sensitivity to Momentum moves.

Published on May 17, 2026