Goldman Sachs Says Capital Spending Is Powering the Bull Market

Stocks posted their best quarter in six years, with the S&P 500 adding over $8T in market value in the past three months as chipmakers continued their rebound from war-driven lows. Fresh data signaled labor-market and consumer-sentiment strength, supporting confidence in corporate earnings. Goldman’s strategist Peter Oppenheimer highlighted a broad-based rise in capital spending across major economies—an underpinning for the ongoing bull market.

Analysis

The strongest second-order beneficiary is not the broad index but the capex supply chain: semis, electrical equipment, factory automation, and network hardware should see the cleanest earnings leverage if this spending is real and sustained. That favors SMH, AMD, ANET, ETN, HON, and ABB over defensives and bond proxies, because the market usually pays up for names with visible order books and operating leverage while punishing sectors whose duration is effectively extended by higher growth/rate expectations.

For GS, the near-term upside is more about positioning than immediate earnings: a healthier investment backdrop supports ECM/DCM, M&A confidence, and trading volumes, but those benefits typically show up with a 1-3 quarter lag. The bigger implication is that if capital spending broadens across regions and industries, the equity market can keep rotating into cyclicals and away from crowded quality/mega-cap duration trades without needing a recession scare to end the rally.

The contrarian risk is that "capex is bullish" becomes too linear: a lot of current spending may be AI/data-center driven, which can lift hardware sales without proportional profit pools for end users, and can also crowd out buybacks/FCF at the operating-company level. If PMIs roll over, credit spreads widen, or 3Q earnings guides show capex intensity outpacing revenue growth, the multiple expansion story can reverse fast. For the next 1-3 months, the key falsifier is whether orders and margins confirm the spending narrative rather than just the narrative itself.

Key Decisions for Investors

• Long SMH or XLK vs. short XLU for 4-8 weeks: highest convexity to sustained capex optimism, with the risk that any rates backup hurts both legs but especially the short-duration defensives.
• Accumulate GS on pullbacks over the next 1-2 weeks for a 3-6 month hold: upside is mostly sentiment/flow driven, with a cleaner payoff if equity issuance, M&A, and trading activity improve into earnings season.
• Pair long ETN or HON vs. short IWM for 1-3 months: if capex breadth is real, large-cap industrials with pricing power should outperform domestic small caps that remain more credit-sensitive.
• Set a hard risk alert on semiconductor cyclicals if 10Y real yields rise and order commentary weakens: if the capex story is not accompanied by margin expansion, trim SMH/AMD exposure on any 5-7% rally from current levels.