Why Goldman Sachs Thinks 2026 Will Reward Discipline, Not Euphoria

Global equities are expected to extend their rally into 2026, supported by steady earnings growth and a resilient global economy. But investors should brace for slower, more measured returns compared with the strong gains of 2025, according to a new outlook from Goldman Sachs.

In its report, 2026 Outlook: Tech Tonic — a broadening bull market, the investment bank said it remains “constructive” on equities, forecasting 12-month price returns of around 13%, or roughly 15% including dividends, measured in US dollar terms.

“We remain constructive on equities for 2026 as earnings continue to grow,” Goldman said, while cautioning that index-level returns are likely to be lower than in 2025 as valuations have already expanded significantly.

The outlook is anchored in Goldman’s macro view of continued global economic growth, coupled with modest easing by the US Federal Reserve. Against this backdrop, the bank sees a low probability of a sharp equity correction or bear market—unless a recession materialises—even though valuations are elevated by historical standards.

Crucially, Goldman expects earnings growth, not valuation expansion, to drive most of the gains in 2026. That marks a shift from earlier phases of the rally, where rising valuations played a larger role.

At the same time, the bank believes markets are firmly in a late-cycle “Optimism” phase. “2025 has been a good example of the early Optimism phase,” the report noted, pointing out that many equity markets—especially outside the US—saw valuations rise alongside earnings. Goldman expects this optimism to persist into 2026, even as valuations now look stretched across regions.

The report also highlighted 2025 as a turning point after years of heavy investor concentration in US equities and technology stocks. While growth stocks have continued to lead in the US, value stocks outperformed in Europe, and sector leadership broadened globally. Non-technology sectors delivered strong gains, even as artificial intelligence remained a dominant investment theme.

This broadening, Goldman argued, strengthens the case for diversification. Equity markets—particularly in the US—remain highly concentrated by geography, sector and individual stocks, increasing the risks of narrow positioning.

In response, Goldman advises investors to stay invested but rebalance. The firm recommends broader geographic exposure, a greater allocation to emerging markets, and a balanced mix of selective growth and value strategies. Sector diversification, it said, will be increasingly important as markets move deeper into the optimism phase of the cycle.

While equities are likely to keep climbing in 2026, Goldman’s message is clear: returns may still be positive, but discipline, diversification and positioning will matter far more than simply riding the rally.