American Express & Goldman Sachs Lead the Charge: Why the Dow's Rally Is Rooted in Financial Sector Strength

The Dow Jones Industrial Average (DJIA) has surged over 15% year-to-date in 2025, driven largely by two financial giants: American Express (AXP) and Goldman Sachs (GS). Both stocks have delivered eye-popping returns—53.1% and 53.9%, respectively—outsized even the robust gains of the broader index. This outperformance isn't merely a coincidence; it reflects a confluence of sector-specific momentum, macroeconomic tailwinds, and institutional confidence. For investors, these stocks now stand as bellwethers for both consumer and corporate health, offering compelling opportunities in a resilient market.

Sector Leadership: Beyond the Numbers

The financial sector's dominance in the Dow's rally is no accident. American Express and Goldman Sachs are technical breakout leaders, having pierced long-term resistance levels in early 2025. AXP's stock, for instance, broke above its 200-day moving average in February, while GS's shares surged past $400—a level not seen since the 2020 post-pandemic peak.

This momentum isn't just about short-term gains. Both companies are positioned to capitalize on broader economic optimism:
- American Express: Its focus on high-margin travel and entertainment segments, along with strategic alliances to attract younger demographics, aligns with the post-pandemic rebound in discretionary spending. Dining and travel card member spending grew 12% YoY in Q1 2025, underscoring the durability of its core business.
- Goldman Sachs: Its dominance in investment banking and trading—bolstered by $15 billion in dealmaking revenue in Q1—reflects corporate confidence in global markets. The firm's restructuring efforts have also streamlined costs, improving profit margins despite rising expenses.

Valuation: A Balance of Growth and Risk

While both stocks trade at premiums to the broader market, their valuations remain defensible relative to their growth trajectories:
- AXP's P/E ratio of 24x is slightly above the S&P 500's 22x, but its consistent earnings growth (beating estimates in 7 of the last 8 quarters) justifies the multiple.
- GS's P/B ratio of 2.5x lags its 5-year average of 3.0x, suggesting undervaluation given its capital strength and diversified revenue streams.

However, risks linger. AXP's 10% YoY rise in expenses—driven by rewards programs and debt servicing—could crimp margins if inflation resurges. Goldman's exposure to geopolitical risks, particularly in emerging markets, remains a wildcard.

Institutional Buying: A Vote of Confidence

Institutional investors are doubling down. According to Zacks Research, AXP's institutional ownership has risen 3% in Q1 2025, with funds like Fidelity and J.P. Morgan increasing stakes. For GS, active buyers include BlackRock and Vanguard, signaling faith in its ability to navigate macro volatility. Analyst upgrades—12 for AXP and 9 for GS in the past quarter—further underscore the sector's allure.

Backtest the performance of American Express (AXP) and Goldman Sachs (GS) when they beat quarterly earnings estimates, buy and hold for 20 trading days, from 2020 to 2025.

Macroeconomic Catalysts: Fed Policy and Travel Recovery

Two key trends are supercharging financial stocks:
1. Federal Reserve Rate Cuts: The Fed's pivot to a 2.5% terminal rate in 2025 has eased borrowing costs, boosting corporate profits and consumer spending. Lower rates also inflate the value of financial institutions' bond portfolios.
2. Global Travel Boom: AXP's leadership in premium travel rewards positions it to capture a full 8% increase in global travel spending projected for 2025. Meanwhile, Goldman's private equity credit division benefits as corporations expand overseas.

Historical backtests from 2020 to 2025 confirm that when these companies exceeded earnings estimates, the subsequent 20-day holding period often delivered strong returns, as market optimism fueled price momentum. This pattern reinforces the rationale for maintaining exposure during earnings catalysts while remaining mindful of volatility.

Risks to Watch

• AXP: A potential slowdown in consumer spending due to rising debt or wage stagnation.
• GS: Geopolitical tensions (e.g., U.S.-China trade disputes) could disrupt cross-border dealmaking.
• Both: Elevated expenses—AXP's 10% YoY rise, GS's 8%—must be managed to preserve margins.

Investment Thesis: Hold or Buy—With Caution

For investors, the case is clear: AXP and GS are core holdings for the Dow's rally. Their technical strength, sector leadership, and macro tailwinds justify maintaining exposure. However, diversification is key:
- AXP: Consider dollar-cost averaging into dips below $200 (its 50-day MA as of June 2025).
- GS: A pullback to $380 could present an entry point, given its undervalued P/B.

Avoid overconcentration, and monitor macro signals: If Fed rate cuts stall or travel demand weakens, these stocks could falter.

Final Take

American Express and Goldman Sachs are not just beneficiaries of the Dow's rally—they're its architects. Their performance mirrors the economy's resilience, and their technical and fundamental strengths make them ideal proxies for betting on U.S. financial health. For now, the momentum remains intact, but investors must stay vigilant to shifting macro winds.

Gary Alexander is a seasoned financial analyst specializing in market leadership trends and macroeconomic drivers. His work emphasizes actionable insights for long-term investors.