Global equities are projected to deliver total returns of 11% over the next 12 months, driven by robust earnings growth that is expected to outweigh the risks associated with historically high stock valuations, according to a new outlook from Goldman Sachs Research.
Earnings To Fuel The ‘Optimism Phase’
While global markets enjoyed dramatic advances in 2025, Goldman Sachs analysts forecast that 2026 will be defined by fundamental profit growth rather than expanding price-to-earnings multiples.
The firm projects equity prices will climb 9% globally, with dividends pushing the total return to 11% in U.S. dollar terms.
Peter Oppenheimer, chief global equity strategist, suggests markets have entered the “optimism phase” of the current cycle. While this phase often sees rising valuations, analysts believe the bulk of this year's gains will be firmly “earnings-driven.”
High Prices, But No Crash In Sight
The report warns that valuations have reached “historically high levels” across all major regions, including the U.S., Japan, and Europe. However, the bank argues that high prices alone are insufficient to trigger a market crash.
According to Oppenheimer, significant bear markets rarely occur without an economic recession. With the global economy poised for continued expansion and the Federal Reserve expected to provide further modest easing, the macroeconomic backdrop remains supportive.
“It would be unusual to see a significant equity setback… even from elevated valuations,” Oppenheimer writes.
The Case For Diversification
Goldman Sachs advises investors to look beyond U.S. borders. In 2025, geographic diversification rewarded investors as U.S. equities underperformed markets in Europe and Asia for the first time in nearly 15 years. The firm expects this convergence to continue in 2026.
As the gap in growth-adjusted valuations between the U.S. and the rest of the world narrows, investors are encouraged to seek opportunities in emerging markets and sectors likely to benefit from the “spillover” of AI capital expenditure, rather than solely focusing on large-cap technology stocks.
Tech Bubble Fears Unfounded
Addressing concerns regarding the tech sector, the note concludes that despite “intense” focus on artificial intelligence, the market is not in a bubble.
Current tech valuations, while high, are supported by superior profit growth and remain far below the extreme disparities seen during the dot-com peak of 2000.
Stocks Remain Positive In 2026 So Far
The S&P 500 and Dow Jones indices have gained 1.44% and 3.09%, respectively, on a year-to-date basis. The Nasdaq 100 index, on the other hand, has risen by 1.03% in the same period.
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, closed higher on Monday. The SPY was up 0.16% at $695.16, while the QQQ advanced 0.083% to $627.17, according to Benzinga Pro data.
The futures of the S&P 500, Nasdaq 100, and Dow Jones indices were trading lower on Tuesday.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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