Goldman Sachs uses the rule of 10 to filter out the most profitable growth stars of the S&P 500, which could be facing a revaluation after a dry spell lasting months.
• Goldman Sachs: Rule of 10 for identifying high-growth stocks
• Recent weakness due to economic expectations
• Will growth stocks look up again soon?
The rule of 10
According to the definition of the US bank Goldman Sachs, companies in the S&P 500 – excluding the finance, real estate and utilities sectors – qualify as particularly high-growth if they meet the criteria of the so-called “Rule of 10”. According to MarketWatch, these mean that a company must show a sales increase of at least 10 percent for the past two years and, according to analyst consensus, is expected to achieve growth of this magnitude in the current year and in the two following years.
Despite this strict selection based on growth strength, Goldman Sachs’ “Rule of 10” selection has recently recorded historically weak development: in the past six months, the corresponding portfolio lagged behind the broad US S&P 500 index by a remarkable 27 percentage points. According to the strategist team, this marks one of the most pronounced periods of underperformance in the last 15 years.
Reasons for the weak performance
While the broader market has recovered, some growth stocks are trading more than 20 percent below their October 2025 highs. A key reason for this development was the expectation of an economic acceleration in 2026, which led investors to shift into cyclical stocks that are sensitive to the economy: “Secular growth stocks have faced a number of challenges in recent months, including the expectation of an economic acceleration, rising bond yields and the risk of disruption through artificial intelligence,” say the experts. “In fact, the median stock in our long-term growth screen has seen a 30 percent decline in price-to-earnings ratios over the past few months and is now trading at near decade lows,” the Goldman team continued.
Numerous companies with promising long-term growth prospects – from established software giants to young AI players – have recently come under massive pressure. Goldman Sachs’ strategist team led by Ben Snider describes this development as a consistent “devaluation of stocks with long-term growth potential.”
High-growth stocks poised for a comeback?
However, the Goldman Sachs strategist team is now predicting a turnaround and a possible comeback of the “Rule of 10” portfolio. Given rising oil prices and a muted outlook for global economic growth, strategists say investor interest is likely to shift back to companies with robust, individual growth profiles.
Economists also expect falling yields on US government bonds, which should increase the attractiveness of growth stocks. In addition to technology giants such as NVIDIA, Meta, Alphabet and Amazon, hardware specialists such as Broadcom and AMD are also among the candidates that could benefit from a normalization of valuations and their strong market position.
The general analyst consensus is also clearly optimistic for high-growth stocks. According to data from TipRanks, stocks from NVIDIA, Meta, Broadcom, Alphabet and Amazon received, on average, a strong buy recommendation over the past three months. Meanwhile, AMD shares received a moderate buy recommendation.
Evelyn Schmal, Bettina Schneider, editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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