The start of 2026 has been turbulent, with top Goldman Sachs traders lamenting: these 15 trading days have felt like years.

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Although only 15 trading days have passed in 2026, the market has already experienced a series of intense policy shocks and geopolitical events, making investors feel that much more time has elapsed. Goldman Sachs chief trader John Flood pointed out that from U.S. military actions toward Venezuela to tariff threats, from regulatory policy shifts to sharp fluctuations in Japanese government bonds, the market has absorbed an exceptionally large amount of information in a short time.

However, amidst this turbulence, the S&P 500 Index has still risen 1.02% year-to-date, and market breadth indicators have improved significantly. Energy, materials, and consumer staples sectors are leading the gains, while technology stocks have fallen 1.34%. The Russell 2000 Index has outperformed the S&P 500 for 14 consecutive trading days, marking the longest streak since 1996.

This expansion in market breadth is viewed by Goldman Sachs as a healthy signal for the U.S. stock market. Institutional investors sharply increased their holdings in December last year, especially in the healthcare and financial sectors, but this also means that positioning in 2026 will no longer be a driver of further upside. Asset management firms' cash levels have dropped to historic lows, and total exposures have reached an extreme level of 302%.

Goldman Sachs expects that, as M&A and stock issuance activities recover and retail and corporate buying returns, the S&P 500 still has a chance to reach 7800 points in 2026.

Drivers of Expanding Market Breadth

Goldman Sachs interprets the improvement in market breadth as a healthy signal for the U.S. stock market and expects the trend to continue. The firm's portfolio strategy research team points out that, from a fundamental perspective, the improvement in market breadth comes from the widening set of opportunities available to investors.

Drivers of these opportunities include improved economic growth prospects and Fed-friendly policy, though some large tech stocks face added uncertainty in earnings outlooks. However, a "catch-down" type of collective valuation drop among large tech stocks is unlikely, which is a positive signal for the U.S. market.

The sector’s current forward P/E ratio is 27, with its premium relative to other S&P 500 stocks at the 24th percentile of the past decade. Although the free cash flow multiple remains elevated and could see further downward adjustment, the current PEG ratio of 1.4 is almost at the low point set at the end of 2022. Goldman Sachs expects the high degree of valuation and return divergence among large tech stocks to persist, and the upcoming Q4 earnings reports and capital spending guidance will be key catalysts for the sector.

From a capital flow perspective, the recent expansion in market breadth also reflects a sustained shift among investors toward diversification in portfolios. Even a slight adjustment in S&P 500 allocation can have a major impact on smaller indexes. For example, shifting 1% of S&P 500 market cap to the Russell 2000 would be equivalent to 19% of the small-cap index's market cap.

Institutional Positioning at Extreme Levels

Goldman Sachs notes that institutional investor positioning was a tailwind for U.S. stocks throughout 2025, as institutions hesitated to add long positions after Trump announced reciprocal tariffs. Asset managers, sovereign wealth funds, and hedge funds were essentially waiting for an obvious pullback to buy, but such a pullback never appeared.

However, in December last year, these institutions poured large amounts of capital, especially into healthcare and financial sectors. Institutional investor positioning in 2026 is no longer a tailwind. Asset management firms’ cash levels are now at historic lows.

Goldman Sachs’ prime brokerage book (combining systematic and fundamental strategies) shows total exposure at 302% (at the 100th percentile on 1-year, 3-year, and 5-year lookback), and net exposure at 82% (98th percentile for 1-year, 99th for 3-year, 80th for 5-year).

Goldman Sachs interprets this to mean that a large number of long positions have recently been added, but short squeeze risk remains extremely high. Its most shorted basket index has risen 18% this year, dragging down the performance of systematic hedge funds. Prime brokerage performance data shows global fundamental long-short hedge funds are up 3.08% this year, while systematic strategies have gained only 0.23%.

Optimistic About the Transportation Sector

Goldman Sachs remains especially bullish on the U.S. transportation sector. The sector underperformed during a multi-year downturn after the pandemic, as demand fell and supply outpaced it. Recently, supply has started to exit the market, with more than five major trucking companies going bankrupt in the past few months, and the government cracking down on illegal drivers. Falling supply has improved pricing.

Additionally, the sector is seen as a beneficiary of artificial intelligence applications, with companies able to improve productivity, gain market share, and do more with less labor. C.H. Robinson is a typical example of this, but the market is starting to recognize that other companies could benefit as well.

Currently, we are in the core period of earnings season, and things look good, with the S&P 500’s low bar for Q4 year-on-year earnings growth of 7% likely to be beaten again. Retail and corporate buying seem to be fully back this year, and M&A and stock issuance markets have performed well so far.

Taking all these factors together, Goldman Sachs believes the S&P 500 still has a realistic path to reach 7800 points in 2026.

Risk Disclosure and DisclaimerThe market carries risk and investment requires caution. This article does not constitute personal investment advice, nor does it consider the unique investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views or conclusions in this article suit their particular circumstances. Investing accordingly is at your own risk.

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