Goldman Sachs' equity strategy team stated in its latest outlook report that global stock markets are currently in a typical "optimism phase," with the breadth of the bull market expected to expand further in 2026. Led by Peter Oppenheimer, the team maintains a constructive view on equities, though they anticipate lower returns for major indices in 2026 compared to 2025, with earnings growth continuing to support market performance.

According to Goldman Sachs' forecast model, global equities are projected to deliver a price-weighted return of 13% in USD terms in 2026, or 15% including dividends. This prediction builds on the strong market performance in 2025. Over the past year, despite a non-linear rally—including a near 25% drop in the Nasdaq early in the year due to spillover effects from "DeepSeek" and tariff concerns—markets rebounded sharply. Since the April lows, the two major U.S. indices have surged nearly 45%.

Goldman Sachs emphasized that the current bull market is transitioning from pure valuation recovery to earnings-driven growth, with performance now showing geographic diversification. Most major equity markets outperformed U.S. stocks in 2025, marking the first time in years that investors have truly benefited from geographic diversification. Additionally, cyclical stocks have outperformed defensive ones, and better-than-expected economic data has further lifted growth expectations.

However, Goldman Sachs also warned that given the record-high concentration in markets across countries, sectors, and individual stocks, diversification will be critical in 2026. Strategists recommend investors stay invested while optimizing risk-adjusted returns through cross-regional, cross-style, and cross-sector allocations, while remaining cautious about potential credit risks and tech-sector pullbacks.

**Cycle Evolution: Entering the "Optimism Phase"** Goldman Sachs' research on U.S. stock cycles over the past 50+ years suggests that markets typically evolve through four phases: Despair, Hope, Growth, and Optimism. The current market is in the final "Optimism Phase," characterized by rising investor confidence—even complacency—with valuations often outpacing earnings growth. While 2025 marked the early stage of this phase, with valuations rising alongside earnings recovery in many non-U.S. markets, Goldman Sachs expects this trend to continue in 2026.

Historically, bubbles often see their most dramatic price surges in the final year. The bank cautioned that if AI-driven narratives fuel further speculation, markets could experience a "melt-up" and exhibit bubble-like characteristics in 2026.

Reflecting on 2025, Goldman Sachs noted a bumpy recovery. Early in the year, the S&P 500 underperformed, undergoing a nearly 20% correction from mid-February to April, while the Nasdaq fell even more sharply. Tariff concerns and spillover effects from "DeepSeek" on U.S. tech were key drivers of the downturn. However, the subsequent rebound was robust, fueled by easing tariff worries and strong earnings—particularly from U.S. mega-cap tech stocks. Unlike the past decade’s U.S.- and growth-led rally, 2025 saw geographic diversification pay off, with undervalued non-U.S. markets outperforming.

**Investment Strategy: Diversification Is Key** For 2026, Goldman Sachs' core recommendation is "diversification is a must." Given the market’s heavy concentration—geographically in the U.S., sectorally in tech, and in individual U.S. mega-cap stocks—this poses both momentum and risks. The bank suggests the following strategies:

- **Stay invested**: The bull market isn’t over. - **Cross-regional diversification**: Increase exposure to emerging markets (EM). - **Cross-style diversification**: Blend select growth and value stocks. In non-U.S. markets, value has outperformed growth, partly due to sectors like financials and mining transitioning from "value traps" to value creators. - **Cross-sector diversification**: Capitalize on expanding tech capex by investing in "old economy" infrastructure sectors benefiting from AI adoption. - **Seek alpha**: Exploit potentially low stock correlations to capture individual opportunities.

**Potential Risks: Macro and Credit Concerns** Despite its optimistic baseline forecast, Goldman Sachs highlighted several downside risks: 1. **Economic slowdown**: Rising unemployment could trigger a market pullback, particularly relevant given high valuations and cyclical stocks’ strong performance. 2. **Tech concentration risk**: Disappointing quarterly earnings or heightened competition could lead to a sell-off in leading tech stocks, which—given their heavy index weightings—could drag down broader markets. 3. **Debt risks**: Increased debt issuance by tech companies has raised credit market risks. Cases like Tricolor and First Brands’ failures have heightened market vigilance. Public finance concerns may also push government bond yields higher. That said, Goldman Sachs believes healthy private-sector and bank balance sheets, along with potential rate cuts beyond market pricing, could mitigate secondary economic effects.