Goldman Sachs Shifts Focus: Utilities and Healthcare Sectors Poised to Outperform

Goldman Sachs Recommends Defensive Positioning Amid Wall Street Optimism

Goldman Sachs has introduced a new sector model that suggests a more defensive positioning for investors, despite near-record optimism on Wall Street. The model highlights defensive sectors such as utilities and healthcare as offering attractive risk-reward profiles in the current market environment.

The investment bank’s analysis comes as Wall Street anticipates high economic growth for the coming year. Goldman Sachs itself forecasts above-consensus U.S. economic growth in 2025, with market pricing indicating even greater GDP growth expectations.

Despite these bullish economic projections, Goldman’s sector model indicates that defensive sectors may outperform cyclicals in the near term. Utilities and healthcare are particularly well-positioned, according to the analysis.

The utilities sector is expected to benefit significantly from the artificial intelligence (AI) boom’s impact on power demand. AI data centers are projected to substantially increase electricity usage, potentially boosting earnings for utility companies, especially those in unregulated markets. This view is echoed by other major financial institutions, with UBS and JPMorgan also expressing optimism about utilities due to AI-related tailwinds.

In the healthcare sector, low valuations present an attractive opportunity for investors. The sector’s forward price-to-earnings ratio is currently favorable compared to the S&P 500 average, although potential policy uncertainties could impact performance.

Goldman’s sector model estimates the probability of sector outperformance over the next six months. It recommends overweights in materials, software and services, and real estate. Conversely, industrials and tech hardware are seen as having the lowest probability of outperformance.

The model’s defensive stance contrasts with the current market sentiment, which shows near-record bullishness and reduced recession fears. Traditionally, such strong economic conditions would favor cyclical stocks. However, Goldman’s analysis suggests a more nuanced approach may be prudent.

Wall Street broadly anticipates the continuation of the bull market, albeit at a potentially slower pace. As investors navigate these complex market dynamics, Goldman Sachs’s new sector model provides a framework for balancing optimism with strategic defensiveness.