The bull market won’t have it easy in 2027 as the vibes around AI investments weaken, Goldman Sachs warned.
“Although we expect solid AI investment growth to continue, our forecasts imply that the investment growth impulse — additional AI investment as a share of GDP — will peak in early 2027. From a macro perspective, this should be a manageable event. But it may be a bigger test for markets for three reasons,” Goldman Sachs strategist Kamakshya Trivedi said.
“First, the AI impulse has been a much larger contributor to growth in earnings and market value than to growth in GDP,” Trivedi explained.
“Second, AI-related equities have taken credit for significant macro productivity gains, especially companies benefiting directly from the infrastructure boom, that have made them more vulnerable to any signs that we are on a less optimistic path,” Trivedi added.
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“Third, the point at which growth rates peak (a “second derivative” turning point) often matters, even if underlying growth rates (the “first derivative”) remain healthy. Moving through that peak allows markets to place limits on the upside of an uncertain distribution and, as growth decelerates, the period of positive surprises to expectations often ends too, as we may be starting to see for the AI capex cycle.”
Stocks have already been put to the test entering the final weeks of the year.
Market volatility has spiked in recent weeks amid the midterm election aftermath, which will see Democrats take control of the House and Senate in 2027.
High-stakes earnings reports from hyperscalers like Amazon (AMZN) and Alphabet (GOOG, GOOGL) freaked out the market as they highlighted dwindling free cash flow.
The removal of Jensen Huang as Nvidia (NVDA) CEO has also triggered a sharp sell-off in hot sectors.
At the same time, macro headwinds have intensified as crude oil prices remain elevated amid geopolitical friction in the Middle East, reigniting fears of sticky headline inflation.
Chicago Fed president Austan Goolsbee said at Yahoo Finance Invest that he thinks the inflation problem is disturbing.
Trivedi added, “AI has contributed more to market gains than economic growth, so [it] is a bigger test for markets than the economy.”
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