Goldman Sachs: S&P Returns 10% in H1 2026, Japan and South Korea Stocks Lead Global Markets
Taylor Wilson
Goldman's hedge fund chief Tony Pasquariello flags ~10% total return for the S&P 500 in H1 — while Korea, Taiwan, and Japan swept the global top three on the back of their AI-infrastructure supply-chain positions. The drivers behind this rally and its stark divergences set the stage for second-half allocation calls.
S&P up 10% — is that actually good?
The S&P 500 returned roughly 10% in H1, trailing the equal-weight S&P 500 (+12%) and small caps (+23%), but historically this counts as a strong first half — and it beats H1 2025.
This means → large caps lagged mid- and small-caps; market breadth is widening, and money is no longer piling into mega-caps alone.
Pasquariello flags a milestone: if the S&P 500 closes above 7,530 for the full year, it will mark only the second time in 68 years of consecutive four-year double-digit returns — the only precedent being 1995–1999's five-year streak.
AI infrastructure — what was the single biggest thread in H1?
Goldman's custom baskets tell the story: storage +250%, data centers +115%, AI semis +101%. In plain terms = every major hardware link in the AI buildout more than doubled in H1.
This thread drove North Asian equity dominance: in local-currency total return, Korea's KOSPI +102%, Taiwan's TWSE +62%, Japan's Nikkei 225 +40% — the global top three.
This reflects a clean logic: whoever sits at the core of the AI-infrastructure supply chain leads the equity scoreboard.
Do the biggest rallies come with the biggest volatility?
The Nikkei 225 rose 37% in Q2 alone — its largest single-quarter gain since records began in 1970.
Korea was even more extreme: behind its surge lay five intraday circuit breakers, roughly half of all breakers triggered this century. This means → price and volatility climbed in lockstep; chasing the rally carried real risk.
Meanwhile, the other end of Asia fell: India's NIFTY −7%, Hong Kong's Hang Seng −10%, Indonesia's JCI −33%. Global divergence was stark.
Why did small caps and momentum run so hard?
Small caps are tracking toward their largest annual excess return over the S&P 500 since 2003. Pasquariello attributes this to three factors: ① a pro-cyclical growth backdrop ② biotech and AI-infrastructure positions (power and data-center names) ③ forced covering of record-high Russell 2000 futures shorts.
In plain terms = shorts were too crowded and got squeezed, while fundamentals provided a tailwind — a classic "earnings + flows" double hit.
Momentum stayed strong too: Goldman's flagship long-short pair trade rose 48% in 2024, 30% in 2025, and another 57% in H1 2026. But Pasquariello warns that realized volatility has risen markedly in recent months, and fundamental investors carry elevated leverage to the factor.
Why are hedge funds still making money this year?
All nine hedge-fund sub-strategies tracked by Goldman posted positive YTD returns; fundamental long-short and macro stood out. Goldman's hedge fund VIP basket is up 22% YTD.
The macro backdrop was far from easy: front-end rate expectations swung from ~50 bp of cuts priced at year-start to ~37 bp of hikes; the dollar flipped from a consensus short in March to a consensus long now; oil gave back nearly all its gains after the Strait of Hormuz was closed for almost four months.
This means → this year's winners were not those who bet on a direction and held, but active managers who repositioned quickly — what Pasquariello calls managers with "unique value."
What is the key signal to watch for H2?
The S&P 500's internal dispersion is striking: 44 stocks are up >50% YTD, 22 are up >100% — yet only 6 are down >50%, and none more than 75%.
In plain terms = excess returns are heavily concentrated in the right tail — a handful of big winners powered the overall return.
This reflects H1's "AI-theme dependency": whether this single thread can sustain into the second half is the critical test of whether current valuations and positioning are durable.
Content is for reference only, not financial advice.