Understanding the global market from 2026 to present in one article: What is going up? Why are US stocks not performing well? Will this trend continue?

Goldman Sachs believes that the economic cycle is still early, but some market valuations of assets are too high. It is expected that AI and technology stocks will experience high volatility, with funds continuing to flow into "cheap" cyclical assets. Investors should be cautious of overvalued sectors and embrace emerging markets and old economy sectors that benefit from recovery in order to diversify their portfolios and cope with future volatility. According to Wind Trading Platform, on February 19, Goldman Sachs released a report titled "Global Market Outlook: Favorable Economic Cycle, Unfavorable Valuation," pointing out the core contradiction in the global market in 2026: the economic cycle is still early, but the market cycle is late. This means that despite the continued strength of macroeconomic data, the "high valuations" of certain stocks and credit markets have become vulnerabilities. For investors, this creates a clear direction for investment: embrace cyclical assets that benefit from economic recovery but still have cheap valuations, while being cautious of AI and large technology stocks that have already seen significant gains. Specifically, emerging market stocks, the Australian dollar, copper, and the capital goods and materials sectors in the US stock market have risen significantly, while the previously leading AI/large technology themes have experienced severe volatility. Goldman Sachs believes that there is still room for continued rotation in cyclicals. Economic data remains robust: the market underestimates growth prospects Growth data continues to support the performance of cyclical assets. The US ISM index has been rising steadily over the past few months, with the surprise index turning positive, and the labor market stabilizing. From a global perspective, the manufacturing PMI in developed markets in January reached its highest level in the past year, and emerging market manufacturing PMI also increased month-on-month. Goldman Sachs data shows that the market is still pricing in US economic growth below its full-year forecast of 2.5%. This means that there is still room for the market to further raise its expectations for the economic cycle. More importantly, in addition to the easing of financial conditions and fiscal support in the US, German fiscal spending is driving a resurgence in German industrial momentum, and with the overwhelming victory of the Liberal Democratic Party in Japan's elections, fiscal support will also be strengthened. Not just cyclical assets: the "physical return" of old economy assets The market performance in 2026 has two prominent features. First, the continued strong performance of non-US stock markets. Second, sector performance is not simply differentiated between cyclical and defensive: commodities and the industrial sector have performed well, as have cyclical sub-industries such as US home builders and regional banks, but consumer staples have also shown strong performance. This reflects a shift in the market from expensive technology stocks to cheaper exposures, particularly in areas that have lagged in recent years, driving "value" to outperform "growth". The market is also rewarding those cyclical exposures that benefit from the traditional global industrial recovery, particularly in capital-intensive old economy sectors that have lacked capital investment for a long time. The continued underperformance of US stocks can be understood from these two dimensions: the US market has expensive valuations, a heavy weighting towards "growth", and historically lower leverage for cyclical recoveries compared to other global stock markets such as Japan, Europe, or emerging markets. Turbulence for the AI theme: volatility becomes the norm The background for the AI-related theme has become more challenging. Goldman Sachs believes that the productivity gains from AI are real, and there is still room for development in the macro investment story. But the market has already priced in these gains too high, mainly focusing on companies directly involved in the AI trend, while attention is shifting to the debt-financed capital expenditure trend. Although the capital expenditure forecasts for super large-scale cloud service providers have increased significantly, new models and applications are showing increasingly powerful capabilities, but this good news has triggered negative market reactions and sharp rotations in crowded positions. The market is concerned about the cash consumption of super large-scale cloud service providers, as well as the potential disruption to software providers and some financial/real estate sectors. Goldman Sachs points out that there is extreme differentiation within the AI-related sectors, and considering the pace of innovation, investment scale, and the accumulated value in AI-related technology stocks, the volatility of this theme will persist in the long term. Core assets remain calm, while peripheral markets are in turmoil The drastic rotation within the stock market highlights another phenomenon in 2026. For many core macro assets, such as US interest rates, major developed market stock indices, and major currencies, volatility remains moderate. However, at the same time, there is extreme differentiation within the US stock market, as well as significant volatility in non-US indices such as South Korea and in commodities such as gold and silver. It is worth noting that despite the current moderate volatility of US stock indices, the longer-term (1-year and 2-year) implied volatility of the S&P 500 has continued to rise to new highs since the beginning of the year. Goldman Sachs believes that holding long volatility positions that are highly negatively correlated with stocks and have good liquidity is a good complement to investment portfolios. Regarding the credit market, despite the resilience shown in January and the absorption of record issuances, Goldman Sachs remains cautious about credit. Higher volatility and the potential for significant income redistribution between companies and industries pose downside risks, and tight spreads may not provide sufficient compensation. The weakening of the US dollar: new and old drivers The depreciation of the US dollar has continued into 2026, but the driving factors have expanded. The trend centered around the euro in the first half of 2025 and the focus on interest rate trades in the second half of the year are still visible. At the same time, in January, concerns about tariffs and the independence of the Federal Reserve led to a weakening of the US dollar against the euro. The underperformance of US stocks compared to Europe and Japan also provides new impetus for diversification and hedging discussions. Currencies that align with the global cyclical view, at the intersection of cyclical beta, commodity exposure, and cheap valuations, such as the Australian dollar, South African rand, Chilean peso, and Brazilian real, have experienced the largest increases against the US dollar. Secondly, foreign exchange policies of multiple countries are receiving more attention, especially the Asian currencies that have become very cheap in relative terms. Investment strategy: continue to bet on cyclicals, but choose the cheap ones Goldman Sachs' view is that there is still room for further increase in growth expectations in the market. This favorable tailwind should continue to support cyclical currencies and traditional cyclical sectors, especially those in areas that still have relatively cheap valuations. The increasing volatility and complexity surrounding the AI theme are likely to persist. While the most drastic movements may still be within major indices, volatility is likely to spill over to the index level regularly and increase over time. This mix still supports diversified stock holdings, maintaining a healthy non-US exposure (including emerging markets), and holding long positions in longer-term index volatility. In this context, core interest rates are more like hedge assets, especially in a backdrop of mild inflation. After the recent rebound, the more likely short-term risk is for yields to rise again, especially if the US labor market continues to stabilize. As for broader hedging, Goldman Sachs believes that there is further upside potential for gold and energy prices, especially if geopolitical risks in the Middle East escalate again. This article is a reprint from "Wall Street News", written by Yang Chen; GMTEight Editor: Liu Jiayin.