Goldman Sachs Research Report Interpretation: S&P Q3 Earnings Grew 33% but No Longer Accelerating; Stocks Outside

Goldman Sachs' Q3 2026 midseason earnings update shows S&P 500 EPS growth of about 33% year-over-year, flat versus Q2 and the strongest non-recession quarter in decades, but the pace of acceleration has stalled. Since the earnings season began, the S&P 500 has fallen 3% while an AI-excluded version of the index has risen 5%, as 70% of constituents posted positive returns but accounted for only 50% of index market cap, signaling market breadth widening through AI stock pullbacks and non-AI catch-up. Energy led sector EPS growth at 138% on higher oil prices, followed by information technology at 67% and communication services at 46%, with those two sectors plus energy driving over 80% of index earnings growth. Hyperscaler capex consensus for 2027 sits near $1.2 trillion, only slightly above pre-earnings levels, and Goldman judges AI capex growth and upside surprises have both peaked, with AI infrastructure EPS growth of roughly 80% expected to slow to about 40% by late 2027 as hyperscaler free cash flow turned negative in Q3. Companies beating EPS estimates were rewarded with a median 152bp outperformance the next day versus the 95bp historical median, led by cyclicals such as industrials (+371bp) and consumer discretionary (+326bp), while TMT beaters underperformed by 76bp. Goldman maintains its S&P 500 targets of 8,000 by year-end and 8,700 over 12 months, implying 4% and 13% upside from 7,720, with energy prices and rates flagged as the key variables for whether non-tech gains continue.