Investing.com — Goldman Sachs said its long/short Momentum factor recently hit its highest volatility in decades outside of a recession, matching the historical pattern that follows three-month rallies of 20% or more, as sharp deleveraging among hedge funds and exchange-traded fund holders points to diminishing rotational turbulence in coming weeks.
The broker identified 11 such episodes since 1980, each followed by a consolidation period similar to the current drawdown. Goldman said both the historical pattern and the pace of recent deleveraging support an improved outlook.
The assessment came alongside a mid-season Q2 earnings update showing broad strength.
S&P 500 earnings per share growth is tracking at 45% year-over-year in Q2, beating a consensus estimate of 22% coming into the quarter, driven largely by a combined $151 billion of “other income” related to equity investments at search giant and e-commerce group
Software maker contributed an additional $3 billion of such income. Excluding those three items, EPS growth stands at 26%, the fastest pace since 2021 and an acceleration from the first quarter.
Of the 61% of S&P 500 companies that have reported Q2 results, 64% beat consensus EPS forecasts by at least one standard deviation, one of the highest rates on record, exceeded only by the prior quarter, the third-quarter 2025 reporting season and the COVID-19 reopening period.
Despite the broad beat rate, the reaction for technology, media and telecom stocks has been muted. The median TMT stock beating on EPS lagged the S&P 500 by 192 basis points on the day after reporting, compared with 75 basis points of outperformance for the median stock in other sectors.
Hyperscaler capex reached $182 billion in Q2 alongside just $5 billion of free cash flow, with $101 billion of combined debt and equity issuance filling the gap.
Analyst estimates now point to more than $1 trillion in hyperscaler capital expenditure in 2027, more than $100 billion above estimates heading into the quarter, with capex projected to exceed cash flow from operations through 2028. Cloud revenues at Alphabet, Amazon and Microsoft grew 48% year-over-year in Q2, accelerating from 39% in the first quarter.
Since the start of the third quarter, the bottom-up consensus estimate for S&P 500 2027 EPS has been revised up 1%, with positive revisions in most sectors. Goldman maintained its year-end 2026 S&P 500 price target of 8,000, implying an 8% return from the July 30 close of 7,438.
