Goldman Says Earnings to Drive More Gains in Asset-Heavy Stocks

Goldman Sachs strategists predict that capital-intensive companies will deliver strong earnings this reporting season, continuing to outperform peers that rely more on human or digital assets. The view is based on the current economic cycle and sector dynamics favoring firms with significant physical assets. This aligns with the so-called Fed model, which compares earnings yield (E/P) to the 10-year Treasury yield. With the S&P 500 forward P/E around 20x, the earnings yield stands at roughly 5%, still above the 10-year yield near 4.2%, suggesting equities remain relatively attractive versus bonds. However, the gap has narrowed, making earnings delivery crucial.

For stock market traders, this suggests a potential rotation into asset-heavy sectors such as industrials, energy, and materials. These companies often benefit from pricing power and operational leverage in an environment of steady demand and manageable input costs. Breadth indicators, such as the percentage of stocks above their 50-day moving average, have improved in these sectors, while technology and other asset-light groups show mixed signals. Additionally, buyback yields in capital-intensive sectors are elevated, providing a floor for valuations. Options-implied volatility (VIX) remains subdued, indicating complacency but also room for upside surprises. On NowPrice, live stock prices and charts show how the market is reacting to these sector trends, with capital-intensive names gaining traction.

Looking ahead, investors should monitor upcoming earnings reports from major industrial and energy firms, as well as macroeconomic data on industrial production and capacity utilization. The relative performance of asset-heavy versus asset-light stocks will be a key theme this earnings season. A sustained move higher in Treasury yields could challenge the Fed model, but if earnings growth accelerates, the equity risk premium may remain supportive. Sector rotation into cyclicals would be confirmed by continued breadth expansion and rising relative strength in materials and industrials. Options markets imply modest moves for key reporters, but any guidance surprises could trigger outsized reactions.