Goldman Sachs: We are in the "optimistic phase" of the cycle! Predicting a 13% global stock market return in 2026.

Goldman Sachs’ equity strategy team pointed out in its latest outlook report that global stock markets are in a typical “optimistic phase”, and the breadth of the bull market will further expand in 2026. The strategy team, led by Peter Oppenheimer, maintains a constructive view on equities, though they expect the major index returns in 2026 to be lower than those in 2025, with earnings growth continuing to underpin market performance.

According to Goldman’s forecasting model, measured in US dollars, the weighted price return of global stock markets in 2026 is expected to be 13%, and including dividends, the total return will reach 15%. This prediction is based on strong market performance in 2025. Looking back at the past year, although the market did not rise in a straight line and the Nasdaq index once dropped almost 25% at the beginning of the year due to the tech spillover effect from “DeepSeek” and tariff concerns, the market then experienced a dramatic rebound. Since the low point in April, the two major US stock indices have rebounded nearly 45%.

Goldman emphasizes that the current bull market is shifting from simple valuation repair to earnings-driven, and market performance is beginning to show regional diversification. Most major stock markets will outperform US stocks in 2025. This marks the first time in many years that investors have truly benefited from geographic diversification. Meanwhile, the strong performance of cyclical stocks relative to defensive stocks and better-than-expected economic data have further boosted growth expectations.

However, Goldman also warns that given record concentrations at the country, sector, and individual stock levels in today’s market, diversification will be particularly urgent in 2026. Strategists advise investors to stay invested while optimizing risk-adjusted returns through cross-regional, cross-style, and cross-sector allocation, staying alert for potential credit risks and pressures for tech stock corrections.

Cycle Evolution: Entering the “Optimistic Phase”

Goldman Sachs points out, based on more than 50 years of research into US stock market cycles, that markets usually go through four phases: despair, hope, growth, and optimism. The market is currently in the final part of the cycle—“the optimistic phase”.

This phase is characterized by increased investor confidence and even possible complacency, with valuations often ascending again and exceeding earnings growth. The report notes that although 2025 is just the beginning of the optimistic phase, and valuations of many non-US markets have risen with earnings recovery, Goldman believes this phase will extend into 2026.

It is worth noting that bubbles in history have often seen even more dramatic price surges in their final year. Goldman reminds that if more speculative behavior is triggered by the AI narrative, there is further "melt-up" and an upside risk for markets to exhibit bubble characteristics in 2026.

Looking back at the past year, Goldman notes that the path to recovery has been bumpy. In early 2025, the S&P 500 performed poorly and saw a nearly 20% correction between mid-February and April, with the Nasdaq falling even further. The report particularly highlights tariff concerns and spillover effects in the US tech sector after the launch of “DeepSeek” as key factors for the previous market drop.

But the subsequent recovery was marked. With tariff worries easing and especially strong earnings results from US mega-cap tech stocks, the market regained its upward momentum. Unlike the last decade when market gains were mainly driven by the US and growth stocks, in 2025 regional diversification strategies began to take effect, with undervalued non-US markets outperforming.

Investment Strategy: Diversification Is Imperative

Looking to 2026, Goldman’s core recommendation is “Diversification is a must”. In Goldman’s view, the current market is geographically dominated by the US, sectorally by technology, and by individual stocks of US mega-cap names. Such high concentration is both a driver and a risk.

Goldman recommends investors adopt the following strategies:

Stay invested: The bull market is not over.Cross-regional diversification: Pay more attention to emerging markets (EM).Cross-style diversification: Combine select growth and value stocks. In non-US markets, value stocks typically outperform growth stocks, partly because sectors like financials and mining have successfully transformed from value traps to value generators.Cross-sector diversification: Leverage the expansion in tech capex to position in “old economy” infrastructure sectors that can benefit from the development of AI.Focus on alpha opportunities: Take advantage of potentially low stock correlations to capture individual stock opportunities.

Potential Risks: Macro and Credit Concerns

While the baseline forecast is optimistic, Goldman lists several key downside risks. First is weak economic growth—rising unemployment may lead to market corrections. Given today’s high valuations and the strong performance of cyclical sectors, this risk is especially relevant.

Second is the concentration risk among tech stocks. If tech companies disappoint on quarterly results or face more competition, it could trigger a correction in leading tech stocks. Given their huge index weight, this could prompt a broader market pullback.

Finally, debt risk cannot be ignored. The report notes that as tech companies issue more debt, risks in the credit market are rising. The failures of Tricolor and First Brands have already heightened attention to potential risks. In addition, concerns about public finances may push government bond yields higher. Nevertheless, Goldman believes that the private sector and bank balance sheets are relatively healthy, and the space for rate cuts may exceed market pricing—these factors will somewhat limit the secondary effects of an economic downturn.

Risk Warning and DisclaimerThe market has risks and investment requires caution. This article does not constitute personal investment advice, nor does it consider the individual user's special investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their specific circumstances. Investments made accordingly are at your own risk.