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Goldman Sachs upgraded global equities to overweight, citing earnings growth, with S&P 500 Q3 profits forecast up about 27% as the reporting season begins.
- Goldman Sachs (GS) raised its three-month view on global equities to overweight from neutral on October 12, 2026.
- Goldman forecasts S&P 500 third-quarter earnings growth of about 27%, the third straight quarter above 25%.
- The S&P 500 forward P/E has fallen to 19.1x from about 22x at the start of the year.
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Goldman Sachs strategists upgraded global equities to overweight on Monday, October 12, 2026, arguing that earnings growth remains supportive and that valuations have become more attractive after a recent pullback. The shift covers the next three months and comes days before banks open the third-quarter reporting season. Goldman expects S&P 500 profits to rise roughly 27% from a year earlier. That would be the third consecutive quarter of growth above 25%. For equity markets today, the call adds a high-profile endorsement to a rally already driven by artificial intelligence spending.
What Did Goldman Sachs Change in Its Outlook?
Goldman moved its three-month stance on global equities to overweight from neutral, while keeping its 12-month overweight view intact. The bank also upgraded its 12-month position on government bonds to overweight.
Regional preferences are unchanged. Goldman remains overweight on Asia and the United States and underweight on Europe.
The firm recommends a "barbell" structure for portfolios. One end holds technology shares tied to the AI investment cycle. The other holds bond-like equities, which tend to benefit if interest rates ease and act as a hedge if growth slows.
Why Are Earnings Expected to Jump So Sharply?
Earnings are expected to jump because AI infrastructure spending is lifting profits across technology, semiconductors and related industries. Goldman's roughly 27% forecast for the S&P 500 sits slightly below the consensus tracked by FactSet, which projects year-over-year growth of 29.5% for the quarter. That is up from 26.7% on June 30.
The consensus figure has risen during the quarter, which is unusual. Estimates normally drift lower ahead of reporting. This time analysts have raised their numbers and companies have backed them with guidance.
- Of the 116 S&P 500 companies that issued earnings guidance for the quarter, 72, or 62%, gave positive guidance. The five-year average is 40%.
- Revenue is expected to grow 12.3%, the third consecutive quarter of double-digit sales growth.
- All eleven sectors are projected to report earnings growth. Five are forecast to post double-digit gains: energy, information technology, communication services, materials and industrials.
- Semiconductor companies are projected to report earnings growth of about 136%, and technology-sector earnings are forecast to rise about 65%.
Beyond this quarter, the consensus expects earnings growth of 27.6% in the fourth quarter and 32.4% for full-year 2026.
How Do Valuations Look After the Pullback?
Valuations look more reasonable than at any point this year, because prices have fallen while profit forecasts have risen. The S&P 500 forward price-to-earnings ratio stands at 19.1x on Goldman's measure. That compares with 21.1x in early June and about 22x at the start of the year. FactSet puts the forward multiple at 19.0, below its five-year average of 19.8 and close to its ten-year average of 19.1.
The compression means earnings have outpaced share prices. Index gains no longer rest on multiple expansion. For a strategist deciding whether to add risk, a market that has de-rated while profits accelerate is an easier case to make than one priced at 22x.
For investors who track the benchmark through funds such as the SPDR S&P 500 ETF Trust (SPY), the question is whether the reporting season validates the forecasts. Large technology companies carry much of the expected growth, so the index is sensitive to their results and capital spending plans.
What Could Derail the Rally?
The main near-term threats are higher rates and higher energy prices. Goldman flagged both as the risks most likely to undercut equities in the coming months.
Three pressure points stand out:
- Rates: If inflation proves sticky, the Fed has less room to ease. That would pressure the long-duration technology shares the barbell strategy favors.
- Energy: Supply concerns tied to the Middle East continue to affect oil prices. Higher fuel costs would feed inflation and could erode margins outside the energy sector.
- Politics: Uncertainty around the US midterm elections could add volatility into November.
The upgrade of government bonds alongside equities reflects this balance. A bond overweight offers protection if growth weakens or rates fall, while the equity overweight captures earnings momentum.
What Comes Next for Equity Markets?
The next test arrives within days, as the largest US banks start reporting and the season broadens through late October. With 62% of guiding companies issuing positive outlooks and estimates rising into the quarter, the bar for beats is high. Strong results are already priced into forecasts, so guidance for the fourth quarter and commentary on AI-related spending are likely to move individual stocks more than headline beats.
Regional dispersion also matters. Goldman's underweight on Europe and overweight on Asia and the US suggests the earnings story is concentrated in markets with heavy technology and semiconductor exposure.
Outlook
Goldman Sachs has turned more constructive on global equities for the next three months, anchored by an earnings backdrop of roughly 27% to 30% growth for the S&P 500 and a forward multiple near 19x. Rates, energy prices and election uncertainty are the main threats to that view. The third-quarter reporting season, along with updated guidance from AI-exposed companies, will determine whether the earnings growth supports the upgrade.
