Market "big clean-up" complete! Goldman Sachs: volatility falls + stock market breadth improves US stocks enter December with a clearer pattern

Goldman Sachs trading department pointed out that although the S&P 500 index ended November essentially flat, the path ahead has become clearer with the decrease in volatility, improvement in market breadth, and trend-following strategies turning bullish. Goldman Sachs senior trader Lee Coppersmith stated in a report that the market breadth, measured by the five-day average of the number of advancing and declining stocks in the S&P index, plummeted to -150 earlier this month, indicating "significant damage beneath the surface." However, on the eve of Thanksgiving, this indicator rebounded to around +150. Coppersmith said, "This is a significant shift - broader market participation, not just narrow rallies, also further indicating that the market has already released a considerable amount of pressure in the middle of this month." Goldman's "volatility panic index" is also showing a similar trend, currently around 5, slightly higher than its three-year average and far below its peak in early November. At the same time, positions in so-called systematic strategies have been reset. Goldman traders estimate that about $16 billion related to the S&P 500 index has been sold off in the past month, exacerbating the previous market decline. After this round of risk-off processes have been largely digested by the market, the firm's outlook for next month has turned slightly net long, with a scale of about $4.7 billion. Lee Coppersmith said, "This means that we have a cleaner starting point entering December compared to a few weeks ago." After experiencing turbulence last week, the US stock market rebounded this week, with all three major indices posting significant gains - the Dow rose 3.18% for the week, the S&P 500 rose 3.73%, and the Nasdaq rose 4.91%. With expectations for a Fed rate cut reigniting, analysts say market sentiment has returned to risk appetite mode. Wall Street Outlook for the US Stock Market in 2026 As the year comes to a close, several top Wall Street investment banks have released their outlook for the S&P 500 index in 2026. While there are differences in target levels, the general consensus is that the US stock market is expected to continue its upward trend, driven by the ongoing AI investment boom, a shift towards loose monetary policy, and expanding profit growth. JPMorgan and Deutsche Bank have set the highest targets on Wall Street. Led by Dubravko Lakos-Bujas, JPMorgan's stock strategy team has set a year-end target of 7500 for the S&P 500 index in 2026, noting that if the Fed continues its rate-cut policy, this benchmark index is expected to exceed 8000 in the next year. JP Morgan's forecast for the S&P 500 index to reach 7500 in 2026 is primarily based on an expected profit growth of 13% to 15% over the next two years. In its baseline scenario, JP Morgan expects the Fed to cut rates twice more before entering a prolonged pause. The bank believes that ongoing improvement in inflation will prompt the Fed to cut rates further, pushing the S&P 500 index to exceed 8000 points. Deutsche Bank has set a year-end target of 8000 for the S&P 500 index in 2026, citing confidence in the expected "diffusion" of profit growth. Deutsche Bank strategists predict that earnings per share for the S&P 500 index will increase significantly by 14% to $320 next year. The bank believes that the growth momentum brought about by AI will transcend the realm of the "Big Seven" in the US stock market into broader market sectors such as finance and cyclical sectors, driving a more widespread bull market. Morgan Stanley strategist Michael Wilson also maintains an optimistic stance, projecting the S&P 500 index to rise to 7800 in the next year. Wilson believes that the recent market sell-off is nearing its end, and any short-term weakness presents a good opportunity to position for a bullish start in 2026. He expects the Fed's rate cut measures to support the stock market, while AI technology will drive enterprise efficiency improvements. His strategy team particularly favors non-essential consumer goods, healthcare, financial, industrial sectors, and small-cap stocks. UBS's global research department has reported that the upward trend in the US stock market driven by AI will continue until 2026, setting a year-end target of 7500 for the S&P 500 index, based on the expectation of strong earnings growth for companies and the concentrated but resilient technology sector continuing to contribute to gains. The report also notes that although concerns about bubble risks and valuations of AI-related stocks persist in the market, such concerns are expected to have a limited actual impact on the market. HSBC has also set a year-end target of 7500 for the S&P 500 index in 2026, expecting the index to achieve double-digit gains for the second consecutive year driven by the core momentum of AI investments. Nicole Inui, head of stock strategy for HSBC in the Americas, said that with the support of "macroeconomic stability, easing policy uncertainty, and the AI investment boom," earnings per share for companies in the S&P 500 index are expected to grow by 12%. In addition, Barclays has raised its expected year-end target for the S&P 500 index in 2026 to 7400, stating that despite weak macroeconomic growth, large-cap tech stocks are performing well, and the monetary and fiscal environment is continuing to improve. The bank's stock strategy team pointed out that the new target level is 5.7% higher than the previous set at 7000, while it has raised the earnings per share estimate for the S&P 500 index in 2026 from $295 to $305. They believe that in an environment of low macroeconomic growth, large-cap tech stocks will continue to operate steadily, and the heat of competition in the AI field shows no signs of cooling down, resulting in tech sector profit growth exceeding the consensus on Wall Street.