Goldman Sachs trader: The U.S. stock market in 2026 is a "boxing match"

Goldman Sachs macro trader Bobby Molavi described the outlook for U.S. stocks in 2026 as a "boxing match," where bullish drivers will clash head-on with increasing bearish risks. On December 3rd, Molavi noted in a client report that the confidence of the bulls primarily stems from the artificial intelligence (AI) boom and massive stimulus measures. He estimates that the "seven tech giants" alone will contribute approximately $600 billion in capital expenditures to the U.S. economy. Additionally, discussions about potential income tax cuts and $2,000 stimulus checks have also added momentum to the market. However, Molavi simultaneously warned that the bearish forces should not be underestimated. He believes that current stock valuations have been pushed to extremely high levels, leaving almost no room for error. More concerning is that the market has become "extremely reliant" on this single theme of AI, with market breadth deteriorating to one of the narrowest levels in the past two decades. This standoff between bulls and bears suggests that the market is facing a critical turning point after a prolonged uptrend. Bullish Camp: AI and Trillion-Dollar Liquidity Build a Defense In Molavi's view, the positive factors supporting the stock market in 2026 are concrete and robust. In addition to the massive capital expenditures from tech giants, a series of macro and micro-level liquidity supports are also gathering. He wrote in the report that factors supporting the bullish view include: the end of quantitative tightening (QT), ongoing fiscal deficit spending in the U.S., up to $1.2 trillion in stock buyback authorizations for 2026, continued "buying the dip" behavior from retail investors, and potential relaxation of banking regulations and capital requirements in 2026. These factors together form a strong support from both the funding and policy sides. Bearish Alerts: Valuation, Credit, and "K-shaped" Divergence In stark contrast to the optimistic outlook are a series of accumulating risks. Molavi emphasized that beneath the surface of rising stock indices, the health of the economy and the market is far from balanced. He pointed out the growing concerns about the so-called "K-shaped economy," where the economic recovery is showing polarization. This is manifested in financial stress among certain consumer groups, rising default rates among low-income households, and emerging pressures in the private credit market. Molavi also mentioned that he has noticed the phenomenon of "AI circularity," where the prosperity in the AI sector is increasingly financed through leveraged expansion. Furthermore, the labor market, which once provided support to the market, may shift from positive dynamics to becoming a hindrance. Market Psychology: Traders Lacking "Muscle Memory" In addition to fundamental factors, Molavi raised a unique risk point from the perspective of market participants. He noted that the unprecedented bull market over the past 15 years has left most traders in the current market lacking the "muscle memory" to cope with sustained declines or deep corrections. "Most of the 'players' in today's market have only seen one type of market," Molavi wrote. This experience has led a generation of market participants to habitually believe that there will always be a bottom support and firmly trust that "buying the dip" is an eternally effective strategy He stated, "On one hand, nothing is eternal," but "on the other hand, the duration of this rise far exceeds anyone's imagination." Molavi believes that if the market truly undergoes a real adjustment, those investors who have experienced bear market cycles and are more seasoned are more likely to emerge as winners