Banking titan Goldman Sachs names several reasons why the S&P 500 is not in danger of a massive collapse amid bubble calls.
In a new episode of The Markets podcast, Mike Washington of Goldman Sachs’ Global Banking & Markets says the market may be frothy but not in bubble territory.
He warns that the S&P 500 may pull back in the near term but notes that a major drawdown is not in sight.
“Do I feel that there’s froth in our system right now? Do I feel that a 5 to 8% pullback probably makes sense at least in the interim? I do. Do I feel that we’re in a bubble with, you know, 30 to 40% market drawdown-type of moves? I don’t.”
Washington says one of the reasons why he doesn’t believe that stocks are in bubble territory is because of valuations. He looks at historical numbers to show that Mag 7 stocks are far from being overvalued.
“This is the most interesting stat I’ve found from our note from research. The 24-month forward EPS of the top seven stocks in the S&P, 27 is the PE ratio. Back in the dot-com bubble, those same top seven stocks, 52. It’s almost half.
And so we’re in a completely different market environment on the valuation side. And yes, it’s elevated relative to what a normal market environment might feel like, but not relative to bubble history.”
The second reason, according to Washington, is the flow of funds from retail investors and corporations.
“We’re projecting billions of retail net demand in 2026. That’s significant. You’re also seeing foreign investors. This year, we saw a staggering amount of foreign investment come in, in part because of the depreciation of the dollar, one, and also because it’s a really good way to get AI exposure by coming into the US. So you saw a robust foreign ownership.
That’s going to play out in 2026.”
Washington also mentions the corporate buyback picture.
“Corporates are buying at the largest clip that they’ve ever bought at 2025. And we project it to be even bigger in 2026.”
In September, BlackRock said that companies are buying back shares worth $1.3 trillion, saying it serves as a massive tailwind for more equity rallies.
Washington cites the “resilient” American consumer as the third pillar of his argument.
“The number one takeaway, and this is direct from corporates, consumer companies, is how resilient that the consumer was. And I feel that for those three reasons, is our market elevated? Yes.
Do I feel like we’re at the precipice of a bubble collapse? I don’t.”
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