Goldman's Hatzius and Snider on the Outlook for 2026 | Odd Lots

One consistent pattern at the top of almost every equity bull market in the past has been tightening Fed policy instead of easing policy that we have today.

Yeah.

And then of course, this is a very small and maybe silly example. But a couple of years ago, I remember when the GOP one drugs were being rolled out, there was a very brief window where investors were talking about buying the airline stocks on the basis that fuel costs would be lower, right?

Yeah.

When this narrative, this type of narrative starts to emerge in my conversations, uh, that's the kind of time where I think you will be seeing prices run ahead of earnings, which as I mentioned, is really not been the case. I'll be a lot more nervous then.

That's interesting. So when you just start to see investors start to justify things on various bank shots ideas.

Stretch the narrative.

Yeah. And that's that's just sort of like, it's like a behavioral sign that maybe people are starting to get over their skis a bit.

I think this has been one of the least enthusiastic markets that is often described as a bubble in recent history.

Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.

And I'm Joe Weisenthal.

We always start these the same with someone saying it's that time of year.

And then it's it's the most wonderful time of the year.

That's right. Uh, never, never change.

2026 forecast season.

It's the outlook season. It is the moment when every investment bank, um, on Wall Street releases their forecasts for next year.

Yeah, and it's a great time, you know, we make New Year's resolutions this time of year. We go back, we give make our list of top 10 things that happen, predictions. That's what you're supposed to. It's a quiet time of the year often. News gets a little quiet often around the holidays.

And then a year later, we completely forget what everyone said about the current year and we just move on and do the next year again. Always forward looking.

Although I do think, you know, 2026 shaping up to be an interesting year for a variety of reasons. Um,

Totally.

We just had a CPI number that came out surprisingly softer than a lot of people expected. Um,

some people say unrealistically softer with 0% shelter costs increase, so that was interesting.

We're going to have a new Fed chairman.

Yeah.

Uh, there's still a question mark over the impact of tariffs, whether we're waiting to see those show up.

Totally.

And, uh, what's going to happen with unemployment as well?

That's been ticking up.

And then it's been this really incredible year, obviously, in the stock market.

I is the US, uh, stock market just continues year after year after year, with a few exceptions here and there, but not many, of putting up massive numbers.

And so the question is like, can we expect to keep?

How long is this realistic?

Especially given, you know, all the concerns about concentration in a handful of names.

Some of which haven't really been doing so well lately.

And so, uh, yes.

So many questions on both the real economy and the, uh, stock market.

Yeah, there's definitely been some dispersion creeping into some of the big AI names or the tech names.

All right. Well, I'm happy to say we do, in fact, have the perfect guests.

plural.

We've got two.

So we're going to be speaking with Jan Hatzius.

He's the chief economist and head of research at Goldman Sachs.

He's been on the show a number of times before.

And we like talking to him at least once a year.

And Ben Snider, he is the chief US equity strategist replacing David Coston.

So thank you both for coming on Odd Lots.

Thanks so much for having us.

Great to be here.

Is research outlook time, is that actually a quiet time for you guys?

It's not a quiet time. Normally, we actually do it about six weeks earlier.

Yeah.

Because actually November tends to be a little bit better than December, but because of the shutdown and the dearth of data.

We decided to push it back.

It's completely under our control when we do it.

And why do it at a time when you actually have much less information than normal?

That makes sense.

So we pushed out a number of reports yesterday, including the global economic and markets outlook.

Can you talk the two of you maybe again, so obviously different roles, but on the same team.

And obviously, the stock market, the US equity market is different from the economy.

And you can have years where the economy is fine, stocks are bad and vice versa.

All different permutations and combinations.

But how do you think about being in alignment cross team and so that roughly you're sort of working under a similar set of assumptions?

Yeah, I can talk about that and not just with respect to the US or global economic outlook versus stock market outlook.

But of course, there's currencies, there's EM economies.

There's commodities.

Certainly on the macro side, I would say we're on the coordinated side of the spectrum.

We're not nobody is at one extreme or the other extreme.

You can't have people that just work alongside one another without ever talking to one another.

But you also shouldn't have just a machine where everything is exactly aligned and there's zero room for individual initiative.

So, but we're we're towards the coordinated side for sure.

Good time to note to, uh, listeners, um, we are recording this December 19th, uh, 2025.

Ben, how do you think about sort of working with, you know, aligning your views of where markets are going?

Or what the meaning of the rally has with the sort of with the macro thinking?

There are a number of frameworks to think about the equity market, but a pretty common one and one we rely on a lot is to think of the market like a stock as a discounted stream of future cash flows.

And from that perspective, the most important driver of stocks is that stream of cash flows, is earnings.

And if you break those apart, the most important driver of those cash flows is usually the US economy.

So we rely very heavily on Jan's forecasts.

So, in terms of Jan's forecast, I noticed you're forecasting strong growth as in GDP, but also rising unemployment.

How do you square those two things?

We have flat unemployment at 4 and a half percent, but it's not going down.

Yeah.

As you might think when you're printing, let's say 2.6% for real GDP in 2026.

And a small part of the answer is that that 2.6 probably overstates the underlying trend a bit because we had the shutdown.

That depressed Q4.

It's going to add to Q1.

But the more important part of the answer is accelerating productivity growth.

And we've seen that over the last five years, the five years since the pandemic.

Have shown about 2% underlying trend productivity growth.

The prior cycle was at about 1 and a half percent.

And I think there's reason to believe that that acceleration is still ongoing.

Because it probably doesn't have a lot of AI in it.

We expect more of a boost from AI going forward in the next five years than in the last five years.

And I think that's got important implications for the relationship between GDP and unemployment.

So, so obviously like the distribution of growth matters. It seems to particularly matter when we're talking about the stock market because you can have sectors that are like very quiet, but then you have these gigantic companies that make a ton of money and capture a lot of the growth and their stocks do incredibly well.

Maybe it would be helpful.

Even before we get to the 2026 outlook for the economy, Ben, like what happened in 2025?

What were the underlying conditions that allowed for such like another monster year, especially for the NASDAQ and a lot of big tech names?

So to bring it back to earnings, one thing that happened was really strong earnings growth.

And I think among all the discussions of bubbles, what's underappreciated is just how strong corporate earnings growth has been.

Just wrapped up the third quarter season a few weeks ago.

And S&P 500 companies in aggregate reported earnings growth of 12%.

Even if we strip out the mega caps, the median S&P stock reported earnings growth of about 10%.

That's very solid.

This seems to be like an underappreciated point, which is that look, yeah, the AI driven market.

The tech heavy market, it is not just that, is it?

I'll take an extension for this.

We spend a lot of time understandably talking about the largest stocks in the market.

The top 10 stocks are over 40% of market cap.

We should spend a lot of time talking about them.