Goldman Sachs Research Expects Slower S&P 500 Earnings Growth in 2027 (Only 18%). Can the Bull Market Keep Going?

Amid signs of rising risk facing tech stocks and the artificial intelligence (AI) sector, new research from Goldman Sachs (NYSE: GS) is cautiously optimistic about the S&P 500 index (SNPINDEX: ^GSPC).

According to Bloomberg reporting as of Oct. 26, Goldman Sachs expects S&P 500 earnings growth to drop from 29% in 2026 to 18% in 2027. But that strong growth could still be bullish for another good year of S&P 500 returns in 2027. Goldman analyst Tony Pasquariello wrote that "The bull market should live on, but it will pack less punch and be messier along the way."

Let's look at why Goldman Sachs' analysis might be a hopeful sign for your investments -- even if there are some big risks and doubts facing the S&P 500.

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S&P 500: Bull market showing signs of weakness

The S&P 500 has delivered a solid return of about 11% year to date, as of Nov. 3. But there are signs of possible trouble ahead.

During the past few weeks since reaching a new all-time high on Oct. 6, the S&P 500 has declined by about 2%. The tech-heavy Nasdaq-100 index is down by about 8% in that time. Investors seem to be worrying that major tech companies are spending too much on AI data centers and developing expensive models, while (so far) showing limited signs of profitable new AI products for the hyperscalers or meaningful AI productivity gains in the wider economy.

If the high hopes of AI investors fail to materialize, that could be bad news for the stock market. But if the wider S&P 500 beyond the AI hyperscalers can keep delivering strong earnings growth in 2027, that could prolong the bull market.

It appears that, for now, there is sound earnings growth happening across the S&P 500, not just in the AI-related tech companies. According to FactSet's Oct. 30 update on S&P 500 earnings season: "All eleven sectors are reporting year-over-year earnings growth. Seven of these sectors are reporting double-digit growth, led by the Energy, Information Technology, and Materials sectors."

Does this mean that the rest of the S&P 500 is safe from a possible AI downturn? Maybe not. Goldman Sachs research on Sept. 23 calculated that almost half of S&P 500 earnings-per-share (EPS) growth in 2026 came from AI investment by hyperscalers (about $800 billion in 2026). If the AI boom falters, or if major tech companies stop spending so much on AI capital expenditures, that would likely have a negative impact on S&P 500 share prices in the short term.

How to invest for a slowdown in S&P 500 earnings in 2027

This has been a good year for the stock market, but there are signs of a possible slowdown ahead. How should you invest? Be prepared for more volatility, but stick to your long-term plan. Even if you're a little concerned about a possible bear market or short-term sell-off in major tech stocks, now could be a good time to buy the Vanguard S&P 500 ETF (NYSEMKT: VOO).

This exchange-traded fund (ETF) has delivered average annual returns of 15.4% during the past 10 years, and about 12% during the past five years. Even if there is a bear market in the short term in 2027, this diversified mix of the largest 500 publicly traded companies in America tends to bounce back and deliver strong gains in the long term.

No single Wall Street bank or analyst is always 100% right. But if Goldman Sachs' analysis on this topic is generally on target, this could be a good sign for another year of decent returns. Keep in mind that the long-run average annual return of the S&P 500 is about 10%. So even if 2027 is an average year, that would still be good news for investors who own S&P 500 ETFs for the long term.

Ben Gran has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.