The trade of the year is entering a new phase, says Goldman Sachs. Here's what it means for stocks.

Goldman Sachs said the “HALO” trade is entering a second, tougher phase, moving from benefiting from AI-driven disruption fears to requiring earnings delivery. In a call with clients, strategists noted that heavy-asset, low-obsolescence companies have performed well so far, but that investors will begin distinguishing winners and losers on financial results rather than relying on higher valuation multiples. The firm’s buy-rated HALO recommendations focus on five themes: infrastructure, basic materials, aerospace and defense, complex manufacturing and consumer platforms, and the physical layer of tech. Goldman highlighted that pairing capital-intensive positions with short exposure to capital-light software services contributed a 20% year-to-date gain. It also expects data centers, semiconductors, utilities and defense to make up more than 40% of total capex in 2026, up from 25% in 2022. The bank added that the next “physical economy” growth phase could favor Europe, Japan and parts of emerging markets more than the U.S.