The trajectory of momentum and the broader S&P 500 index will be influenced by the macroeconomic landscape and the outlook for AI investments, according to a research report from Goldman Sachs released this week. The firm cautioned that while momentum may persist for another month, historical patterns indicate that sharp rallies approaching market highs often result in below-average returns in subsequent months.
Goldman Sachs noted that a decline in AI capital expenditures or a rise in equity and bond market volatility could precipitate a “catch down” reversal, whereas an improved macroeconomic outlook could ignite a catch-up rally among lagging stocks. The strength of AI-focused investments has led the S&P 500 to achieve 14 new highs in the past month, despite a narrowing of market breadth and an increase in momentum.
The index has recorded a year-to-date gain of 10%, with technology stocks contributing 85% of that increase, while non-technology S&P 500 stocks only rose by 3%. Additionally, the momentum factor has delivered a 25% return over the past three months, marking one of its most significant upswings on record. Goldman Sachs observed that the intersection of AI and momentum has created a scenario where many investors regard the equity market today as “one big trade” instead of “a market of stocks.”
The report highlighted historical instances since 1980 where sharp momentum rallies typically extended for another month before tapering off. Examples cited include mid-1998, late 1999, mid-2015, and late 2021, when momentum gains near market highs were followed by subdued equity returns in the near term. Conversely, Goldman Sachs pointed out that some of the most pronounced momentum rallies during downturns, such as in September 1990 and March 2020, were followed by robust average S&P 500 returns in the next three to six months.
Recent market momentum has been bolstered by increasing earnings estimates, with bottom-up consensus for S&P 500 earnings per share (EPS) in 2026 and 2027 rising by 8% year-to-date, primarily due to augmented AI capital expenditures and elevated energy prices. However, excluding AI infrastructure and energy companies, S&P 500 EPS estimates for 2027 have remained flat year-to-date. Goldman Sachs noted that the breadth of EPS revisions has been positive across all sectors over the past month, with stocks demonstrating the strongest revisions generally outperforming their peers.
In discussions with portfolio managers, Goldman Sachs identified the challenge of finding investment opportunities that do not hinge on a perspective regarding AI. The firm recommended that investors target equities with supportive fundamentals from earnings growth and revisions, regardless of whether those earnings are driven by AI or other market influences.
At the sector level, Consumer Staples emerged as having the least exposure to AI or momentum strategies. The report also emphasized an “Insensitive Portfolio” comprising firms with favorable recent EPS revisions and minimal vulnerability to fluctuations in market momentum.
Published on May 17, 2026.
