Goldman Drops a Major Warning on the S&P 500

This article first appeared on GuruFocus.

Goldman Sachs said the S&P 500's gains are masking a narrower market, with artificial intelligence shares supporting the index while fewer companies participate in the advance, according to a client note.

The bank's strategist Ben Snider said the median S&P 500 constituent is about 16% below its 52-week peak. Goldman's investor sentiment gauge also stood at negative 0.9, matching its March level.

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The benchmark has returned about 14% in 2026, while its forward price-to-earnings multiple has dropped to 19 times from 22 times. Goldman said higher interest rates and doubts over the durability of AI-related profit growth have contributed to the lower valuation.

Goldman's valuation framework places the current multiple alongside a 22% return on equity, which Snider said remains high historically but is two percentage points below the current level. The bank said its long-short value strategy has gained more than 25% since mid-2025 but could deliver smaller returns ahead.

Snider said investors may need to look beyond the market's largest AI beneficiaries and assess companies based on their longer-term growth prospects as macroeconomic uncertainty changes.