Goldman Says Midterms Could Accelerate Market Rotation
Goldman Sachs' Lou Miller points to healthcare as a defensive pick as AI-linked stocks retreat from earlier highs.
Updated on Nov. 7, 2026 in Investing
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Lou Miller, Global Head of Custom Basket Trading at Goldman Sachs, said the US midterm elections could speed up an ongoing rotation in stock markets. He named healthcare as a potential defensive investment and the next leg of the AI trade.
Why it matters
AI-linked stocks have fallen sharply from their highs earlier this year, and Goldman's view suggests investors may shift toward sectors with steadier earnings. For U.S. investors, the move could reshape where portfolio gains come from in the months ahead.
Data centre stocks are down 36%, memory stocks 42%, optical networking 46%, and NeoCloud stocks 57% from their earlier-2026 highs, while the data centre trade multiple is about half its June level. Goldman did not say how far the sell-off will extend or when it will stop.
The players
Goldman Sachs
A major global investment bank and securities firm that runs trading, advisory and asset management businesses for institutional and retail clients.
Lou Miller
Global Head of Custom Basket Trading at Goldman Sachs, who oversees the bank's custom basket trading business for institutional clients.
The details
Miller made the remarks on Goldman Sachs' The Markets podcast, saying investors had already begun moving toward defensive positions before the midterms. He urged a focus on companies with strong balance sheets, quality earnings and healthy free cash flow, and cautioned against consumer staples because of elevated valuations.
Timeline
Earlier in 2026, AI-related stocks reached highs before their sharp declines.
June 2026 marks the point when the data centre trade multiple was roughly double its current level.
December 9, 2026 is the date of the Federal Reserve's expected policy decision.
Healthcare earnings growth could accelerate in 2027, according to Miller.
Market Dynamics
The commentary follows a documented sell-off in AI-linked stocks, with data centre, memory, optical networking and NeoCloud names all falling sharply from earlier-2026 peaks. Goldman's view that rotation could intensify around the midterms places the current pullback within a broader shift away from the year's AI leaders.
Investors holding large positions in AI-linked stocks may need to reassess allocations as valuations reset. Those considering defensive sectors should weigh the balance-sheet and free-cash-flow standards Miller highlighted before shifting holdings.
The takeaway
Miller's guidance favors companies with strong balance sheets, quality earnings and healthy free cash flow over momentum-driven names. Investors may find that discipline matters more than chasing the year's highest-flying sectors if the rotation he describes takes hold.
What happens next
Employment, inflation, corporate earnings and the Federal Reserve's December 9 policy decision are expected to drive markets next.
Further reading
For more on how investors position portfolios during shifts like this, see the Investing section.
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