Goldman's Hatzius and Snider on the Outlook for 2026
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
This Odd Lots podcast episode features two top Goldman Sachs minds discussing the extraordinary year of 2025 and outlook for 2026. (01:42) Jan Hatzius, the bank's chief economist and head of research, and Ben Snider, chief US equity strategist, review what happened in 2025 and analyze how AI and tariffs will impact both the real economy and stocks next year. Despite recession worries, the real economy defied expectations while equity markets delivered monster returns. (02:34) The conversation explores whether this performance can be repeated in 2026, examining key factors like productivity growth, unemployment trends, and market concentration.
- Main Theme: Analysis of 2025's exceptional economic and market performance, with focus on AI's productivity impact, tariff effects, and the sustainability of current market trends heading into 2026.
Speakers
Jan Hatzius
Jan Hatzius serves as Goldman Sachs' chief economist and head of research, bringing decades of experience in macroeconomic analysis and forecasting. He has been a regular guest on financial podcasts and is known for his coordinated approach to economic research across global markets, currencies, and commodities.
Ben Snider
Ben Snider is Goldman Sachs' chief US equity strategist, replacing David Kostin in this role. He focuses on analyzing equity market trends through frameworks like discounted cash flows and earnings forecasts, with particular expertise in understanding the relationship between economic conditions and stock market performance.
Key Takeaways
AI's Minimal Current GDP Impact Despite Massive Investment
Despite hundreds of billions in AI infrastructure spending, the actual contribution to measured GDP growth has been "pretty close to zero" according to Hatzius. (10:59) This occurs because the goods being invested in are largely imported, and semiconductors are treated as intermediate inputs rather than investment in GDP calculations. The real productivity boost is expected to come in future years as AI adoption spreads beyond the most innovative companies to all levels of the economy, potentially taking a decade to fully diffuse.
Productivity Growth Is Changing the Unemployment-GDP Relationship
The US is experiencing accelerating productivity growth at about 2% annually, up from 1.5% in the prior cycle, with more AI-driven gains expected. (07:22) This explains why Goldman forecasts strong 2.6% GDP growth alongside flat 4.5% unemployment rather than declining joblessness. Higher productivity allows the economy to grow without necessarily creating proportionally more jobs, fundamentally altering traditional economic relationships that professionals have relied on for decades.
Earnings Growth, Not Speculation, Is Driving Market Performance
The 2025 market rally has been supported by genuine earnings growth, with S&P 500 companies reporting 12% earnings growth and median companies showing 10% growth. (09:05) Unlike the dot-com bubble, investors are focusing on near-term earnings rather than speculative future productivity gains. Even the S&P 493 (excluding mega-cap tech) has consistently delivered 15% returns for three consecutive years, demonstrating broad-based corporate performance rather than just tech concentration.
Market Concentration Reflects Earnings Reality, Not Speculation
The top 10 stocks now represent about 40% of market capitalization but also account for approximately one-third of total S&P 500 earnings. (37:17) This suggests the market was correctly anticipating earnings growth five years ago when these companies represented a third of market cap but smaller earnings share. The concentration isn't purely speculative but reflects actual business performance, though it raises questions about whether this earnings dominance can continue indefinitely.
Tariffs Created Price Level Effects Rather Than Sustained Inflation
Goldman estimates tariffs contributed about 50 basis points to core PCE inflation in 2025, less than their initial 100 basis point forecast. (19:43) Companies responded through three main levers: passing through some costs as price increases, pushing back on suppliers to absorb costs, and improving internal efficiency. The tariff impact functions more like a value-added tax increase - creating a one-time price level adjustment that cycles out after twelve months rather than sustained inflationary pressure.
Statistics & Facts
- S&P 500 companies reported 12% earnings growth in the third quarter of 2025, while the median S&P stock showed 10% earnings growth. (09:05) This demonstrates broad-based corporate performance beyond just mega-cap technology companies.
- The top 10 stocks in the market now account for over 40% of market capitalization and approximately one-third of total S&P 500 earnings. (37:17) Five years ago, these companies represented a third of market cap, showing the market correctly anticipated their earnings growth.
- Goldman Sachs estimates AI investment contributed only about 20 basis points to measured GDP growth over the last three to four years, and pretty close to zero over the last year. (10:59) This is because AI goods are largely imported and semiconductors are treated as intermediate inputs rather than investment.
