Goldman's Hatzius and Snider on the Outlook for 2026 - Odd Lots Recap

Podcast: Odd Lots

Published: 2025-12-29

Duration: 46 minutes

Guests: Jan Hatzius, Ben Snider

Summary

2025 saw extraordinary economic resilience and stock market performance despite recession fears. Jan Hatzius and Ben Snider from Goldman Sachs analyze the factors that drove this success and predict how AI, tariffs, and economic policy might influence 2026.

What Happened

2025 turned out to be a remarkable year for the U.S. economy and stock market, with the real economy maintaining its strength despite widespread recession fears. The stock market posted impressive gains, with the S&P 500 companies achieving a 12% earnings growth in the third quarter alone. Jan Hatzius, the chief economist at Goldman Sachs, and Ben Snider, the chief US equity strategist, examine these outcomes and discuss whether such performance can be sustained into 2026.

Goldman Sachs projects a stable U.S. unemployment rate of 4.5% and a GDP growth of 2.6% for 2026, suggesting continued economic resilience. Productivity growth has been accelerating, largely due to technological advancements, with AI expected to significantly boost productivity over the next five years. Despite these positive trends, AI investments are predicted to slow down, potentially relying more on debt financing.

AI's influence on the economy has been modest so far, contributing only about 20 basis points to GDP growth over recent years. However, its potential for future productivity gains remains a key focus. The AI sector is witnessing some dispersion among major tech players, indicating a maturing market landscape.

The episode also highlights the impact of tariffs, which were initially expected to cause a 100 basis point increase in inflation but resulted in only about a 50 basis point effect. Companies are adapting by restructuring supply chains and improving efficiencies to offset these pressures.

Market dynamics are changing, with speculative activity remaining below the levels seen during previous financial bubbles. The concentration of earnings within the top ten stocks of the S&P 500 is increasing, now accounting for a third of total earnings, which raises concerns about market vulnerability.

The Federal Reserve's policy outlook includes two anticipated rate cuts in 2026, aiming to maintain economic stability as the housing market remains tepid. Meanwhile, China's manufacturing sector has shown resilience despite U.S. tariffs, continuing to produce competitively priced goods.

Looking forward, Goldman Sachs has set a target of 7,600 for the S&P 500 in 2026, reflecting optimism about continued market growth despite high valuations. This projection aligns with expectations of moderate consumer spending growth and a stable economic environment.

Key Insights

• The U.S. economy is projected to maintain a stable unemployment rate of 4.5% and achieve a GDP growth of 2.6% in 2026, indicating continued resilience despite previous recession fears.
• AI has contributed only about 20 basis points to GDP growth in recent years, but its potential for future productivity gains remains significant, especially with technological advancements.
• Tariffs were initially expected to increase inflation by 100 basis points, but the actual impact was about 50 basis points as companies adapted by restructuring supply chains and improving efficiencies.
• The S&P 500 is projected to reach 7,600 in 2026, driven by moderate consumer spending growth and a stable economic environment, despite concerns over high valuations and market concentration.