Goldman Sachs Strategy: Markets to Turn "Wilder" in 2026

After a bellwether year where the S&P 500 delivered double-digit returns and an 8-month winning streak, Goldman Sachs Global Head of Hedge Funds, Tony Pasquariello, is advising clients to embrace a regime of higher volatility.

While describing 2025 as “Very Good” on paper, Pasquariello notes the divergence between index performance and the difficulty of trading it. The Nasdaq 100 surged 21%, but realized volatility spiked to 19% (83rd historical percentile), and one-third of index constituents actually finished the year in the red.

The “Wilder” 2026 Outlook

Pasquariello predicts 2026 will see a continuation of the bull market but with significantly more violent price action.

1. Valuations: The S&P 500 P/E ratio has expanded from 21.5x to 22.0x, leaving little margin for error.

2. Breadth: The “Magnificent 7” trade is showing fatigue. While Google (+65%) and Nvidia (+39%) outperformed, the law of large numbers is capping momentum. Nvidia alone added—and then lost—$1 trillion in market cap within a seven-week window, exemplifying the fragility of current leadership.

3. Liquidity Structure: The explosion of 0DTE (Zero Days to Expiration) options, which now account for nearly two-thirds of short-dated volume, is creating “gamma traps” that exacerbate intraday moves and create sudden liquidity vacuums.

Macro Fundamentals

Despite the volatility, the “floor” for equities remains earnings growth. 14 percentage points of the S&Ps 2025 return was driven by EPS growth, proving that corporate America has successfully navigated the high-rate environment. However, with sovereign debt swelling and AI capital earning expectations sky-high, the simple “buy and hold” strategy may underperform tactical, active management in the year ahead.