Goldman Sachs (GS) Needs a Strong Market to Hold into Q1

Goldman Sachs (GS), the institutional banking powerhouse, will need the cycle to hold up as it approaches Q1 earnings, scheduled for April 13. While its fundamentals remain solid, U.S. bank stocks have lagged this year amid concerns about how long the current favorable macro environment can last. Elevated inflation pressures, geopolitical tensions, and market volatility raise questions about whether trading, mergers and acquisitions (M&A), and capital-raising activity can sustain last year’s momentum. For now, I maintain a Hold rating on GS ahead of the earnings release.

Capital Markets Are Back, but Not Smoothly

It’s fair to say that the current economic landscape has been helping U.S. banks like Goldman Sachs make money. There’s still excess liquidity circulating in the system — tailwinds from deregulation — and companies have been investing heavily in technology, especially in artificial intelligence (AI). In practice, this has translated into more M&A activity, increased capital raising through initial public offerings (IPOs) and debt, and higher trading volumes.

These dynamics were recently reiterated at a Goldman Sachs investor conference, where management remained broadly constructive on the macroeconomic backdrop. According to the bank, this combination should continue to support stronger M&A and capital markets activity throughout 2026.

This optimism is already reflected in Goldman Sachs’ positioning. The bank continues to benefit from strong trading activity, with Global Banking & Markets accounting for roughly 80% of pre-tax income. In addition, there is a robust investment banking pipeline, with backlog levels pointing to continued deal activity. M&A volume reached $1.48 trillion in 2025, generating $4.6 billion in advisory fees. In Q4 2025, investment banking grew 25% year-over-year, with backlog reaching its highest level in four years.

Yet, management expects capital market conditions to continue improving, particularly compared to the more subdued environment seen between 2022 and 2024. That being said, they also acknowledge that the path is unlikely to be linear.

Goldman Sachs Is Leaning into the Market

While Goldman Sachs sees a favorable environment for 2026, the bank is also positioned to benefit if that trend continues, albeit with some moderation in risk, as shown in the latest quarter. The chart below shows Value at Risk (VaR) by category.

As shown, interest rates are the largest component of market risk in the latest December 2025 print, with equity prices also playing a meaningful role, while currencies and commodities are smaller contributors. A diversification effect helps partially offset total risk. While VaR has indeed moderated relative to the higher levels seen in 2024 and throughout 2025, it still appears elevated enough to suggest that Goldman Sachs continues to have meaningful — and not necessarily defensive — exposure to market movements, particularly in rates and equities.

With interest rates remaining the primary source of market risk for GS, the bull case heading into Q1 largely depends on how active markets remain — namely, on continued volatility and meaningful moves in rates. If that holds, trading revenues should remain strong enough for Goldman Sachs to continue capturing wallet share, albeit at a more modest pace than in 2025.

The Bar Is Still High Heading into Q1

Looking ahead, Goldman Sachs is set to report its Q1 results, with consensus estimates pointing to roughly 14% year-over-year earnings-per-share (EPS) growth and continued revenue strength. However, looking beyond the headline numbers, what may matter most for the investment thesis is essentially three key pillars.

On trading, coming off a strong Q4 base — where equities grew 25% year-over-year and Fixed Income, Currencies, and Commodities (FICC) grew 12% year-over-year — a healthy outcome for Q1 would be equities continuing to grow at a double-digit pace and FICC in the mid-single to low double digits. This doesn’t require a repeat of Q4, but simply avoiding a sharp slowdown would already suggest a highly monetizable environment remains in place.

In investment banking, the best-case scenario would be a sequential improvement in advisory following a 3% quarter-over-quarter decline, which would point to a strengthening cyclical trend. Finally, a stable or increasing backlog would be key — coming off four-year highs — as it would reinforce that underlying activity remains robust.

In short, if Q4 showed what Goldman Sachs is capable of in a strong market environment, Q1 should indicate whether that environment is holding or already starting to normalize. With the stock trading at nearly 16x trailing earnings, roughly 30% above its five-year historical average, the bar is clearly high. In this context, simply delivering growth may not be enough; the market needs evidence that the current level of activity in trading and investment banking is sustainable. Otherwise, even a “beat across the board” may not be sufficient to support the current multiple.

Is GS a Buy, According to Wall Street Analysts?

Of the last 10 ratings issued by Wall Street analysts on GS, four were Buy, five were Hold, and just one was Sell, resulting in a Moderate Buy consensus. The average price target stands at $986.90, implying a potential upside of about 14.3% from current levels.

The Setup Requires Confirmation

Although the near-term macro has been somewhat choppy, Goldman Sachs continues to point to a broadly constructive setup for 2026, suggesting that the issue is less about direction and more about how smooth that path will be.

In this context, while I see Goldman Sachs as a more balanced case in the near term — and acknowledge that its positioning within a still-constructive environment supports the bull case — the current valuation arguably already reflects much of this backdrop. As such, I lean toward a more cautious stance, maintaining a Hold rating while waiting for clearer evidence that this level of activity can be sustained over the coming quarters.