A rapid rally in U.S. stocks driven by artificial intelligence has fueled investor concerns that the market may be approaching unsustainable levels of enthusiasm, but Goldman Sachs said several key indicators remain below the extremes seen during previous market bubbles.
In a report published Friday, Goldman Sachs strategist Ben Snider and colleagues said the S&P 500 (SP500) has gained 13% since late March, making it one of the sharpest rallies in decades. Prior to a pullback on Friday, the benchmark index had climbed 15% in two months, a move ranking in the 99th percentile of historical returns since 1980.
The rally has been closely tied to enthusiasm surrounding AI-related stocks such as Micron Technology (MU) and momentum trading strategies, prompting investors to question whether equities have risen too quickly.
"Speculative mania is a poor timing indicator but one of the dynamics that has characterized the peaks of previous high-valuation, high-concentration bull markets," the report said.
Exuberance indicators elevated, below past extremes
Goldman analyzed nine indicators across four categories: share prices, trading activity, investor sentiment and corporate sentiment.
The bank found that the median ranking of those indicators currently sits in the 86th percentile relative to history since 1995. By comparison, the same measures reached the 100th percentile during the dot-com bubble and the 95th percentile during the 2021 market peak.
The report noted that market breadth has narrowed significantly, meaning a relatively small group of stocks has driven much of the market's gains. However, Goldman said the concentration remains less extreme than during the late 1990s technology bubble.
Unlike previous speculative episodes, the bank said much of the recent rally has been supported by improving earnings expectations. Consensus forecasts for S&P 500 (SP500) earnings per share have risen 16% so far this year, exceeding the index's 8% price gain.
Goldman continues to expect strong profit growth, forecasting S&P 500 (SP500) earnings of $340 a share in 2026, up 24% from 2025.
Trading activity sends mixed signals
The bank's Speculative Trading Indicator has risen in recent months but remains below levels reached during both the dot-com bubble and the 2021 market surge. The indicator tracks activity in unprofitable companies, penny stocks and shares trading at elevated valuation multiples.
Trading in high-valuation stocks has become particularly intense. Goldman said activity in stocks with enterprise value-to-sales ratios above 10 times ranks near the highest levels recorded in recent decades, surpassed only by conditions seen in 2000.
At the same time, short interest remains unusually elevated. Short positions in the median S&P 500 (SP500) stock equal 3.2% of market capitalization, the highest level outside of the 2008 financial crisis and significantly above levels recorded during market peaks in 2000 and 2021. Goldman said the data suggest investors remain more skeptical than many sentiment indicators imply.
Investor sentiment remains divided
Survey-based measures of investor sentiment present a mixed picture, according to Goldman.
The latest survey from the American Association of Individual Investors showed bearish respondents slightly outnumbering bullish respondents, with 37% identifying as bearish and 36% as bullish. That contrasts with sentiment readings from Yale University's Stock Market Confidence Indexes, which are near levels recorded during the 2000 and 2021 peaks.
Goldman's own U.S. Equity Sentiment Indicator recently registered 0.2, its lowest reading since early April.
Meanwhile, Wall Street strategists remain divided on the market outlook. Bloomberg data cited by Goldman show year-end 2026 S&P 500 (SP500) targets ranging from 7,181 to 8,250.
Equity issuance increasing
Corporate activity is also picking up, though Goldman said conditions remain far from the excesses seen at previous market peaks.
The bank expects 2026 to be a record year for the dollar value of U.S. equity issuance. However, issuance as a percentage of market capitalization is projected to remain close to average levels recorded between 2015 and 2019. Goldman also expects corporate demand for shares, including buybacks, to continue exceeding supply this year.
Initial public offering activity has improved but remains relatively subdued. The number of IPOs this year is on track to roughly match the long-term annual average of 100 deals, well below the nearly 400 IPOs completed in 1999.
While Goldman said none of the conditions that historically marked major market tops are fully present today, the firm noted that some warning signs have become more visible. IPO activity is recovering, corporate profit margins face pressure from higher costs and financial markets have recently priced in a greater possibility of Federal Reserve rate hikes, even though Goldman economists view additional hikes as unlikely.
Overall, the bank concluded that investor enthusiasm is elevated but remains short of the levels that characterized previous speculative peaks.
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