US economy expected to grow faster in 2026 despite stagnant job market: Goldman Sachs

Goldman Sachs projects U.S. real GDP will accelerate to 2.6% in 2026 (vs. Bloomberg consensus 2%), driven by fading tariff drag, roughly $100 billion in consumer tax refunds (≈0.4% of annual disposable income) from the OBBBA, full expensing boosting capex signals, and more favorable financial conditions from prospective Fed rate cuts and deregulation. Headwinds remain: the average effective tariff rate jumped ~11 percentage points and trimmed ~0.6 percentage point from GDP in H2 2025, core PCE inflation ran at ~2.8% in 2025 (tariff pass-through currently ~0.5pp, may rise to ~0.8pp by mid-2026) but is expected to fall to just above 2% by end-2026, while the unemployment rate is expected to stabilize around 4.5% with limited near-term improvement.

Analysis

Market structure: Reduced tariff drag and $100B of consumer refunds (≈0.4% of annual disposable income) materially reallocate near-term demand from importers to domestic capital goods and AI/cloud suppliers. Winners: capital-equipment OEMs (CAT, DE), semiconductor-equipment and AI infra (SOXX/NVDA), domestic-focused staples; Losers: import-heavy retailers and apparel (AMZN, TGT) and low-margin importers that lose pricing power. Supply/demand: fading tariff pass-through (from ~0.5pp now to ~0.8pp mid-2026 then fading) should relieve input-cost inflation H2 2026, tightening real demand for capex while loosening consumer discretionary real purchasing power in H1 2026.

Risk assessment: Key tail risks are tariff re‑escalation (policy shock), faster-than-expected AI-driven productivity forcing layoffs (unemployment >5.0%), and sticky core PCE (>3.0%) that delays Fed cuts. Time horizons: watch immediate (next 30–90 days) for IRS refund flows and tariff announcements, short-term (Q1–Q2 2026) for capex orders and ISM new‑orders lift, long-term (2026–27) for durable productivity effects from AI. Hidden dependencies include concentration of refunds in higher‑save cohorts and front‑loaded capex that could reverse in 2027.

Trade implications: Tactical long industrials/capex and semiconductor-equipment exposure for H1–H2 2026, paired with disciplined shorts of import-exposed retail names. Rate-sensitive assets should reposition for Fed cuts: overweight 7–10y duration on signals of a cut cycle (expect 40–70bp downward pressure on 10y into late‑2026). Use call spreads on OEMs and put spreads on large retailers; size trades to 1–3% of portfolio each with explicit stop-loss triggers.

Contrarian angles: Consensus underweights the risk that AI accelerates job cuts—if productivity surprises, consumer demand may fall even as capex booms, compressing margins in consumer-facing sectors. Full expensing can produce a one‑time capex spike then normalization (mean reversion in orders by 2027), so avoid buy-and-hold concentration; mispricing likely in domestically oriented industrials (underowned) and in cyclical retailers (over-owned). Historical parallel: post‑tax‑cut capex bursts that faded after 12–18 months (early 2000s); position for a front-loaded 2026 rally, hedge for a 2027 rollback.

Key Decisions for Investors

• Establish a 2–3% portfolio long position in capital‑goods/industrial names: buy 9–12 month call spreads on CAT and DE (allocate ~1.25% CAT, 1% DE) or 2% via XLI if prefer ETF exposure; target 20–30% upside by Q4 2026. Add if ISM new‑orders for capital goods rises >8% QoQ or order books show sequential improvement in the next 90 days; exit or hedge if ISM falls below 50 or order growth stalls for two consecutive months.
• Implement a relative-value pair trade: long XLI (2.0%) / short AMZN (1.0%) via buying XLI outright and buying 3–6 month AMZN put spread (e.g., 10–15% OTM) to profit from domestic capex strength and import‑exposed retail pressure. Reduce short if tariff announcements cut effective rates by >3pp or if Jan–Jun 2026 tax refund cadence materially lifts Amazon’s discretionary categories (monthly retail sales +2% m/m).
• Initiate a 2% duration trade: buy 7–10yr Treasury exposure (TLT or note futures) sized to portfolio risk if 10‑yr yield >4.20% expecting Fed cuts that could push yields down 40–70bps into late‑2026. Place conditional stop-loss to unwind if core PCE prints >3.2% on a 2‑month rolling basis or Fed signals no cuts through mid‑2026.
• Purchase 0.5–1.0% VIX call spreads (3‑month) and 6–12 month protective puts on industrial longs (5–7% OTM) as tail hedges around tariff-policy windows and FOMC meetings. Trigger buys 10–20 trading days before scheduled tariff reviews or the first Fed meeting where market odds of a cut exceed 50%.