Goldman Sachs predicts that the global equity market will continue its bull run in 2026, though index returns may be lower than in 2025, with a more diversified market landscape. The AI dividend is expected to spread from core tech giants to a broader range of sectors.
On December 20, Goldman Sachs released its 2026 Global Equity Strategy Outlook, stating that equities still have room to rise, supported by sustained economic growth and further moderate easing by the Federal Reserve. The bank defines the current market as being in the "optimism" phase of the cycle, which is expected to extend into 2026. On a market-cap-weighted basis, global equities are projected to deliver a 13% price return and a 15% total return (including dividends), driven primarily by earnings growth rather than valuation expansion.
The report highlights that 2025 already saw a broadening trend in global equities, with U.S. stocks underperforming other major markets for the first time. European, Chinese, and Asian markets delivered nearly double the dollar-denominated total returns of the U.S. market, a trend expected to strengthen further in 2026. Non-U.S. markets are likely to outperform U.S. equities, breaking the previous highly concentrated market structure.
Goldman Sachs emphasizes that the dominance of the tech sector is not solely driven by AI but has been supported by consistent earnings growth since the financial crisis, with current valuations not reaching historical bubble levels. In 2026, AI benefits will expand beyond core tech giants to a wider array of industries and companies, particularly those leveraging AI and related technologies to improve margins and productivity.
**Economic Expansion and Policy Easing Support Continued Bull Market** Goldman Sachs expects the global economy to maintain broad-based expansion in 2026, with the Fed likely to implement further moderate monetary easing, providing a solid foundation for equities. The bank forecasts a 13% price return and a 15% total return (including dividends) for global equities in dollar terms, driven mainly by earnings growth.
The current market is in the "optimism" phase of the equity cycle, characterized by rising investor confidence and valuations, which could lead to upside risks to core expectations and potentially drive outperformance. The bank divides the equity cycle into four phases: "despair" (bear market), "hope" (valuation-driven rebound), "growth" (earnings-driven longest phase), and "optimism" (rising confidence and valuations).
Using the COVID-19-triggered bear market as the starting point, Goldman Sachs observes a typical cycle progression, with 2025 exemplifying early optimism as many markets (especially non-U.S. markets with lower valuations) saw both rising valuations and earnings growth. Historical data also suggests that without a recession, even high valuations do not typically lead to significant corrections or bear markets.
The 12-month forward P/E ratio for the U.S. stands at 22.3x, or 20.2x excluding mega-cap tech stocks. Valuations in Japan, Europe, and emerging markets are also near or at historical highs. Given elevated valuations, Goldman Sachs expects 2026 returns to be driven more by fundamental earnings growth than valuation expansion. Its earnings model projects:
- S&P 500 earnings growth of 12% - STOXX 600 earnings growth of 5% - Japan’s TOPIX earnings growth of 9% - Asia-Pacific (ex-Japan) earnings growth of 16%
**Broadening Bull Market: Non-U.S. and Non-Tech Sectors Rise** The report notes that 2025 marked a clear broadening trend in global equities, which will intensify in 2026, breaking the previous highly concentrated market structure. For the first time in nearly 15 years, U.S. stocks underperformed in 2025, with Europe, China, and Asia delivering nearly double the dollar-denominated total returns of the U.S. market.
Specific markets like Italy (54%), Spain (73%), and South Korea (71%) stood out, while emerging markets surged due to faster earnings growth, lower U.S. rates, and a weaker dollar. Goldman Sachs predicts U.S. stocks will continue to slightly underperform global peers in 2026, with the MSCI Asia-Pacific ex-Japan and MSCI Emerging Markets indices expected to deliver 18% total returns (USD), surpassing the S&P 500’s projected 15%.
In terms of style, growth stocks still dominate in the U.S., but value stocks are outperforming in non-U.S. markets, breaking the decade-long dominance of growth stocks. Traditional value sectors like financials and mining have transformed from "value traps" to "value creators," while expanded tech capital expenditures are creating growth opportunities in "old economy" infrastructure-related areas.
Sector-wise, the broadening trend is evident. In 2025, tech and financials (representing growth and value, respectively) led gains, while real estate and healthcare (cyclical and defensive sectors) lagged, showing that quality stocks are emerging across both growth and value segments. The earnings contribution of the top seven tech giants in the S&P 500 is expected to decline from 50% in 2025 to 46% in 2026, while the remaining 493 companies’ earnings growth will rise from 7% to 9%, further reducing sector concentration.
**AI Dividend: From Core Giants to Wider Beneficiaries** In 2026, AI benefits will expand beyond core tech giants to a broader range of industries and companies. Goldman Sachs stresses that the current tech rally is not a pre-bubble frenzy, as today’s tech giants have stronger balance sheets and tangible cash flows compared to the 2000 dot-com bubble.
However, the market volatility triggered by DeepSeek in early 2025 warned investors of intensifying AI competition and shifting cost structures. The bank notes that stock correlations among the five AI hyperscalers have plummeted from 80% to 20%, indicating investors are no longer buying the sector indiscriminately but are discerning potential winners.
This divergence suggests that even within tech, diversified exposure can yield better risk-adjusted returns. In 2026, investors will increasingly focus on AI beneficiaries outside the tech sector, particularly companies using AI to boost margins and productivity. The spillover effects of tech capital expenditures will drive growth in non-tech sectors like industrials, materials, and financials, creating cross-sector "AI + industry" growth waves and further broadening the bull market’s sector coverage.
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