Goldman Sachs: Why The Market Hasn't Collapsed... Yet

Goldman Sachs just released their biggest ever report on the American stock market, raising serious questions about a 2026 crash. So should we sell the S&P, go global, or get out of stocks entirely? If you're new to the channel, I'm James. I'm a former professional trader turned financial educator, and in this video I'm going to break down exactly what Goldman said so you can cut through the clickbait and know how to position your portfolio for the key trends that are unfolding right now. So what exactly did the Goldman report say? Just as importantly, what didn't it say? So first of all, some context here. It wasn't a note or a tactical trade idea from them. This was a 144-page structural review of the entire US stock market. Oh behave! And Goldman framed the entire thing around just one idea: resilience. Oh! And this split the report basically into 4 sections. Why the US economy's held up despite inflation, higher rates, and all these recession calls. Secondly, where the real vulnerabilities are— supply chains, politics, you name it— but why none of these are ultimately going to bring a recession in 2026. And what's actually driving returns, why investors shouldn't be fearful of an AI bubble. And finally, what this means for investors, which is not sell America, but rather diversify intelligently and stay invested. And that last part is key because nowhere in this report does Goldman say sell US equities, abandon stocks, or hide in gold. This is exactly why this report landed at the perfect time, because the market's just been whipsawed again after Trump's surprise announcement of Kevin Walsh as the next Fed chair. Walsh is a guy that's seen as being tougher on inflation, so suddenly the market's questioning just how many rate cuts we'll actually get. And cue the dollar ripping higher, gold rolling over, and everyone dusting off the sell America trade again. The consensus view is that the US outperformance was a macro story, that the stock market is overvalued and that the rally can't go on forever. But if that were true, the market would have already broken. It had the biggest concentration of high-quality businesses of anywhere in the world, and that's what people are missing. Take, for example, the 7 stocks that represented over half of the S&P 500's total return in 2025. And what matters here isn't the names themselves, it's what they share in common. They score highly on a quality factor, a factor that has consistently outperformed, not just in the US, but globally. And here you can see the comparison between the performance of the MSCI World Quality Index, which is just a basket of better quality companies from that same universe, compared to the lower return for the broader MSCI World market, the same thing that your ETF would track. And you can see within this, the majority of the top 10 companies were indeed US tech, with the exception of ASML being based in the Netherlands We're looking at Meta, Apple, Nvidia, Microsoft, Google, the majority of which are in the Magnificent Seven. And when you look at the breakdown of the MSCI World Quality Index, once again the US is the leader with 76% of the constituents being headquartered in America. So US leadership wasn't about geography at all, it was that America happened to have more high-quality businesses than any other country, and And that fits perfectly with Goldman's core theme of resilience in this report. Which brings us to the next more important question: why does quality hold up so well even when the macro conditions change? And if it's so powerful, why doesn't everybody follow it? The reality is that there are two types of investors: those that think top-down, that obsess over factors like inflation, rates, elections, GDP, and those who think bottom-up, that put the company fundamentals first trying to own the best companies regardless of the backdrop. And here's the problem: most companies report quarterly, and most quarters look very similar to the one before, so the long-term trajectory barely changes. And that means that compared to macro, which is changing constantly, there's not as much for the press to talk about. So macro dominates the conversation because there's something new happening every day. And that's where a lot of investors go wrong, because when you invest purely top-down you're just trading the cycles. Whether it's the business cycle, the interest rate cycle, or increase in the news cycle, all those trades end up being highly correlated, and the truth is they're very often just coincidence. So while cycles change and the narrative's changing constantly, dominant businesses don't, and quality therefore provides exactly what Goldman's talking about— resilience. So let me show you what I mean here. This shows you the correlation between the US business cycle, which is depicted by the ISM PMI, it's a lead indicator of that, compared to beta. It's the relationship between risk-on and risk-off, whether it's stocks versus bonds or specific sectors, currencies, Bitcoin, commodities, you name it. As the business cycle expands, it's risk-on, and when it rolls over, so too does the beta cycle. So everything's correlated, and this is where most investors get stuck because this ebbs and flows and all end up doing is just getting whipsawed here. So instead, what you can be looking for are bottom-up fundamentals and finding that fundamental resilience regardless of the cycle. So take, for example, the Quality Index that we just looked at, only this time it's applied to only the S&P 500, the US stock market, rather than globally. And what you can see is that quality has massively outperformed value. So by looking at the correct fundamental factor you can significantly outperform the market. So why is quality resilient? They're capable of generating cash throughout the cycle. So whether through good times or more challenging conditions, they've got that consistency. What they can then do is go on to reinvest that cash at high internal rates of return, something known as the return on investment, the ROI or RIC, return on capital. And what that allows them to do is to compound their earnings. And over the long run, stock prices should reflect earnings. Now what you can see here is that this factor is also consistent in lowering risk, which is market volatility, and increasing the return, not only in Europe, the US, but globally, including in emerging markets as well. So this isn't an anomaly that we might be drawing a false conclusion from, from one different region. What this chart shows you is the persistence and therefore the resilience of the quality factor. Companies that have this quality profile tend to remain quality companies 10 years later. So that's what resilience looks like at the company level. It's not about guessing the next rate cut or trying to predict the next recession. It's about owning businesses who whose models remain intact across the cycle. And that's what Goldman's telling the clients to focus on, rather than worrying about bubbles or crashes and what comes next. Because when you look bottom-up, the market leaders don't look fragile at all. They just make the S&P's returns and distributions look uneven. And that distinction matters because nobody's forcing you to own the entire market. It's just become default for the majority of investors who are too lazy to look beyond ETFs. And no intelligent investor would ever put their money into terrible companies. Instead of owning the best ones. But the problem is that a lot of people don't know what to look for when it comes to quality, and they often get confused with either growth or income investing. And that's why we're not all quality investors. So let me first of all define it, and then I'm going to show you the exact parameters that I use as a fund manager, and I continue to use this day managing my portfolio to find them. Now admittedly, this is a very dry definition from MSCI in terms of how they define quality. So you're looking at companies that are profitable They have so-called earnings quality, which is really consistency, low financial leverage, which means basically they don't have too much debt, so they're not sensitive to interest rates. Asset growth is therefore more sustainable, and they have good corporate governance because of course everybody loves a virtuous capitalist. Now in this chart, they've laid out 4 of the factors that contribute to outperformance. It shows above 100 that the top 20% of companies, according to low leverage, according to earnings quality, according to ROE, according to quality itself overall, have outperformed the bottom 20%. I've taken all of this and distilled it down into my own model, and it looks at 7 factors. So I've expanded it slightly, and you can see an example of Visa, where compared to the S&P 500, which is in white, I'm just highlighting it here. It has a much broader footprint according to the 7 parameters on the left-hand side that I've just listed. So let's take a look at a few of these now. So one of them is durability. Do they have pricing power? And you can see here that first of all, the level is very high and it's very consistent. So big tick in the box. In terms of efficiency, which is the return on invested capital I mentioned earlier, super important for compounding. Improving and then remaining very consistent. And lastly, in terms of profitability, that's the trend that you want to see. So when you put this all together, Visa has returned about 2,300% compared to the S&P 600. So it's done nearly 4x the S&P 500's total return over that time. So this is the power of using the quality factor to invest and pick single stocks rather than relying on ETFs or trying to predict macro and get caught up in the beta and the business cycle chop. If you want some inspiration, I'll include a link to my watchlist in the description where you can get a bunch of these stocks for you to dig into for free. But to summarize, these traits, they might not sound exciting, but they're incredibly resilient, and that's the point when it comes down to making money. But you might still fail to do that if you get this next bit wrong. So what I'm going to show you now is how to put all of these ideas together without adding too many stocks to your portfolio or having too few to give you any real diversification. Mathematicians will say that about 30 positions is the minimum that you should have in order to ensure a modest degree of diversification. I remember being interviewed for a position to take over the management of the West Yorkshire Pension Fund, which was like the second biggest fund in the entirety of the UK, and they couldn't get beyond the idea of owning less than about 120 companies at any one time. It just didn't make sense to me. Owning more than 30 positions is basically seeing your closet benchmarking. It's going to get you very little tracking error, which in other words is a fancy term of saying you'll get the same return as the bloody market. And that's not what you're being paid to do as an active manager. And this is the key breakthrough: among high-active share portfolios, those whose holdings differ substantially from the benchmark— what I was just explaining— only those with Patient investment strategies on average outperform by over 2% per year. So if you hold too many stocks or you don't give them enough time to work out— by which this study suggests a minimum of 2 years— then you're not going to outperform the market. Weighting is something that people often get very confused by, and I'd look to weight my positions equally. So if you have 20 stocks you would have 5% in each and then rebalance those back to the target 5% once a year. You don't need to be doing it more than that. So striking the right balance between concentration and diversification is going to help you maximize your return while keeping your risk under control as well. But there's one more edge that I want to share with you now that's arguably more important than anything else I've shown you, and it could mean the difference between you're doing okay as an investor, and you're retiring a fucking millionaire. You want details? Fine. I drive a Ferrari 355 Cabriolet. There was an experiment in the 1980s by a commodities trader by the name of Richard Dennis, and legend has it that he taught a group of novices who affectionately became known as his turtles, who were all using these same rules and began to trade with the same amount of capital. He was a commodities trader. And for the most part, these guys were wildly successful back then. Many of them went on to make millions, uh, I think it was $175 million between them, and many of them working for hedge funds later on in their careers. But their individual returns did still vary, and not everybody was quite as successful. So as the media began to pick up on this and public interest was growing in it, Dennis claimed that he could print the exact rules in the newspaper, even the same trades and people would still get different results. So why am I telling you this? Well, the single most important thing stopping you from making life-changing amounts of money as an investor is you. Your biggest edge is to actually remove yourself from the process. What this chart shows you is how the longer you hold stocks, the greater your outperformance. Everybody's crowded into short-term trading. All this competing technology, billions of dollars of high-frequency trading capital and hedge fund money is all chasing short-term returns, and therefore it's been competed away. It's left a gaping opportunity going out over several years. So the longer your horizon, let's say 2+ years, the greater your edge. So instead of worrying about the macro, sell America, buy America, living in America, I don't know, buy quality businesses. And do nothing. We've looked at stock selection and how focusing on quality will give you an edge over the market according to the historical performance, which of course, just for a full disclaimer, is no guarantee of future results. This of course is only for educational illustrative purposes only. And never eat yellow snow, that's also another good tip. We've seen that. We've looked at portfolio construction, ensuring the right amount of positions so that you're not spread too thinly And equally, you still— and equally, you're not exposing yourself to too much risk, unintended risks. And thirdly, your time horizon and why it pays to be patient. And if you begin to stack these compared to the market return, which historically before inflation has been 10.5%, £10,000 or $10,000, preferred currency of your choice, Over 30 years, we turn into £200 grand. This is before inflation, mind you. If we assume a 2% edge, as we've seen through the examples that we've gone through for stock selection, so focusing on quality, you can almost double that over a 30-year period. And 30 years might sound like a long time, and it is a fairly long time, but for investors, somebody starting out even at my age now, if I was only starting out now at 37 with £10 grand, By the time I come to state retirement age at 67, as it stands currently, it could be even later by that point. That's 30 years. And the chances are that if you're watching this, you're either going to be a bit younger or have a heck of a lot more saved up. You might even be both. Adding on the next source of edge in portfolio construction, so concentrating in your best ideas and concentrating in quality, might add another 2%, just as we saw with this study from the Journal of Economics. Provided that you're holding those individual positions for 2 years or more. Again, this is of course only research, this is illustrative, it's by no means a guarantee, certainly not financial advice, but hopefully you're beginning to see how we can stack these edges and how it can make such a difference to your returns. And finally, if we were to be able to generate a further, let's say, 2% edge in harvesting the long-term risk premium that exists in the stock market. In other words, holding for multiple years when everybody's become short-termist and is competing away returns there, it's leaving these opportunities for more patient investors. That can get you to nearly £1 million. So that is a hell of an ascension. You're 5 times better off in this hypothetical scenario by being able to stack these edges. And over time, you're going to do a lot better than leaving it in a savings account getting destroyed by inflation, or just bunging it in an ETF, or or heaven forbid, getting absolutely rinsed by an advisor. So now you understand these pillars, how to stack edges, watch this next video which shows you how I grew my account by half a million quid last year using this exact process that I've just shared with you. It's gonna be a blast. See you in the next one.