Goldman Sachs says buy these 23 defensive stocks as the economy and bull market struggle

Buckle up for a more challenging year ahead of the US stock market, Goldman Sachs says.

The Wall Street bank warned of a more troubled backdrop for stocks heading into 2027, issuing its top recommendations for investors in the evolving macro environment. While US economic growth and earnings growth will remain positive, both are poised to slow in the next year, strategists said. That could collide with how market breadth, a measure of the number of winning stocks in the market to losing stocks, has narrowed in recent weeks, a team of strategists led by Ben Snider wrote in a client note on Monday.

The bank pointed to higher interest rates, which have cut into growth expectations for the US economy. GDP is expected to have expanded at a 3.6% pace in the third quarter, according to the Atlanta Fed’s latest GDPNow estimate, down from an estimate of over 6% earlier this summer.

Meanwhile, Goldman forecast S&P 500 earnings to slow from around 29% in 2026 to 18% in 2027.

More trouble has also been brewing below the surface of the stock market. While the S&P 500 is near records, 84% of stocks in the index trading at least 10% below their all-time highs, according to an October analysis from The Kobeissi Letter.

“In contrast with the historical playbook, extremely narrow market breadth today cautions investors to be wary of Momentum factor exposure,” the Goldman analysts wrote, referring to the momentum trade, which took off this summer as high-flying chip and memory stocks saw rapid price increases.

Strategists said they see a few areas of opportunity for investors:

• Consumer-facing laggards. These stocks could get a boost as the lowest earners see income growth accelerate in 2027, Goldman said. It pointed to how low-income consumer discretionary stocks have rallied by around 7% since the start of October, while consumer experience stocks also show “secular growth.”
• Health care stocks. If the growth outlook continues to deteriorate, this sector could offer investors some protection, given that it has typically been one of the S&P 500’s best-performing areas when growth is positive but decelerating, strategists said. In such an environment, health care stocks see a median quarterly excess return of 1% over the index, per Goldman’s analysis.
• Consumer staples stocks. This sector should also “outperform,” assuming the market continues to cut its growth outlook, Goldman said.

Strategists listed 23 defensive stocks from the health care and consumer staples sectors. The stocks have low realized volatility in their share price and high free cash flow yields relative to other stocks in the sector, the bank added, two reasons why they might be attractive to investors

Here are Goldman’s top recommendations:

23 defensive stocks to own