The S&P 500 valuation multiples have already "peaked" and declined first. Goldman Sachs: The market may be approaching a "growth shock" scenario.

The S&P 500 Index has fallen a cumulative 9% since its January peak, but the multiple compression has far exceeded the index itself—price-to-earnings (P/E) ratios have already moved into an “adjustment” range.

According to Pursuit Wind Trading Desk, Goldman Sachs’ latest weekly strategy report warns that the current market action is growing increasingly close to the previously set “growth shock” scenario; if geopolitical conflict continues to escalate, the U.S. stock market still faces additional downside risk.

A triple whammy of surging oil prices, rising interest rates, and geopolitical uncertainty has pushed the S&P 500 forward 12-month P/E ratio down from 22x one month ago to 19x, a 14% decline. At the same time, the 10-year U.S. Treasury yield has risen sharply by about 50 basis points, reaching the 2-standard-deviation threshold typically associated with U.S. equity selloffs. Notably, even though P/E ratios have compressed rapidly, the expansion in the stock risk premium has been relatively limited.

Goldman Sachs’ U.S. stock sentiment indicator this week fell to -0.9, the lowest level since August 2025, reflecting that investors are substantially cutting back on stock exposure. Historical data show that when this indicator breaks below -1, it often signals stock returns above the average level, but the signal becomes more reliable when it drops below -1.5. Goldman Sachs says that with the fundamental outlook not improving, the current positioning level is not enough to push the market higher.

Valuations have led the way to “peak,” and the market is nearing the “growth shock” trigger point

Since the S&P 500 reached its all-time high on January 27, it has fallen 9%, but the drop in P/E has been even more severe—from 22x on January 27 to 19x today, a 14% decline—meaning it has entered a technically meaningful “adjustment” range. By contrast, during this selloff, analysts have instead raised their per-share earnings forecasts for 2026; the cumulative upward revision over the past month is 3%.

Goldman Sachs’ report notes that both the S&P 500 level and the sentiment indicator readings are now approaching the levels set by the earlier “growth shock” scenario, and the distribution of recent outcomes is improving in a direction favorable to stock investors. However, Goldman Sachs’ relative pricing for cyclical sectors versus defensive sectors, as well as the pricing of dividend futures, all show that over the past several weeks, the market’s pricing of economic growth has been revised down only slightly; the sharp rise in interest rates is the main macro driver behind this selloff.

Goldman Sachs warns that if the conflict continues to escalate and drags on the economic outlook, there is still room for further downside in the stock market. In reference to the S&P 500’s drawdown during past severe oil supply shocks, the index could dip to 5,400 points—about 15% below current levels.

Fundamentals: AI investment supports 40% of earnings growth, and the oil price shock has limited impact

From a fundamentals perspective, Goldman Sachs maintains its benchmark forecast for 2026 S&P 500 earnings per share growth of 12%, to $309. Goldman’s top-down model shows that for every 1 percentage point change in U.S. real GDP growth, S&P 500 earnings per share change by about 3% to 4%; meanwhile, for every 10% change in oil prices, the impact on earnings is only about 0.4%. This indicates that earnings are not very sensitive to oil prices, and the bigger risk is a severe and sustained supply disruption causing a material drag on economic growth.

Goldman Sachs economists’ current benchmark scenario assumes that oil flows through the Strait of Hormuz remain at 5% of normal levels over the next 6 weeks, Brent crude ends the year at $80 per barrel, and U.S. real GDP growth—calculated year-over-year based on the fourth quarter—stands at 2.1%. Even in the worst case—when crude rises above $150 per barrel, the disruption lasts until May, and capacity is impaired—the economists still expect U.S. real GDP growth to exceed 1%. Goldman estimates the probability of the U.S. falling into a recession over the next 12 months at 30%. If a recession occurs at the historical mean level, S&P 500 earnings per share would fall to $239.

AI spending is the key variable supporting earnings. Goldman Sachs estimates that AI infrastructure investment will account for about 40% of this year’s S&P 500 earnings per share growth. Micron’s recent forward earnings guidance came in 60% higher than Goldman Sachs and the market’s consensus expectations; the subsequent upward revision to consensus expectations is equivalent to providing an additional 2 percentage points of support for S&P 500 2026 earnings per-share growth.

Q1 earnings season: Technology drives growth, and management guidance matters more than results

Consensus forecasts show that S&P 500 earnings per share in Q1 will grow 12% year over year; if achieved, it would mark the sixth consecutive quarter of double-digit growth, the longest streak since the post–global financial crisis earnings recovery. The earnings season officially begins in the week of April 13, with about 60% of the S&P 500’s market capitalization completing disclosures during the last two weeks of April.

By sector, the Information Technology sector is expected to grow earnings per share by 44% year over year, contributing 87% of the S&P 500’s Q1 earnings growth. NVIDIA and Micron are expected to combine to contribute more than 50% of the S&P 500’s Q1 earnings growth. The capital expenditure trajectory of mega-scale cloud computing providers will be the key focus of the quarter. Analysts expect total Q1 capital expenditures to reach $149 billion, up 92% year over year, before growth slows quarter by quarter afterward. Free cash flow at these mega-scale companies has declined 32% year over year over the past 12 months, and investors will closely watch signals on returns from AI investment.

Goldman Sachs says that in the current backdrop of macro volatility, management guidance and forward-looking commentary will be more informative than already-reported earnings. Referencing the experience from the Q1 2025 earnings season, in a macro-volatile environment, the stock-price lift from earnings that beat expectations is often smaller than the historical average, and the concentration of stock movement around earnings day likewise tends to decline.

Beyond the Technology sector: Margin pressure and “wait-and-see” sentiment coexist

Outside the Technology sector, the core issue investors are watching this quarter is how much rising energy costs and supply-chain disruptions are eroding corporate profit margins. The S&P 500 net profit margin hit a historical high in Q4 2025, but survey data show that even before the outbreak of conflict, companies were already concerned about rising input costs for raw materials, while pricing expectations remained relatively mild—this combination poses challenges for the margin outlook. Consensus forecasts indicate that the S&P 500 net profit margin in Q1 will edge down slightly from the historical peak in Q4.

Looking at early reports from companies that have already disclosed earnings, the signals are still fairly positive. Since March, 32 S&P 500 constituents have released earnings; analysts’ median upward revision to these companies’ 2026 earnings per share forecasts is 0.5%. Most management teams have taken a “wait-and-see” approach toward geopolitical uncertainty, and few companies provide clear forward guidance. Goldman Sachs believes that management commentary and guidance in subsequent reports will be a more important source of information for judging companies’ earnings outlook.

The above content is from Pursuit Wind Trading Desk.

For more detailed analysis, including real-time insights, frontline research, and more, please join 【**Pursuit Wind Trading Desk ▪ Annual Membership**】

![](https://img-cdn.gateio.im/social/moments-c275200d7a-7bbf671286-8b7abd-ceda62)

Risk warning and disclaimer

          

            The market involves risks; please invest cautiously. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should evaluate whether any opinions, viewpoints, or conclusions herein are suitable for their circumstances. Invest at your own risk.