Global Stocks Are Projected to Return 11% in the Next 12 Months

Goldman Sachs Research expects global equity prices (market-cap weighted) to climb about 9% over the next 12 months and to return roughly 11% including dividends (as of Jan. 6, 2026), driven primarily by earnings growth amid continued global economic expansion and modest Federal Reserve easing. The report warns valuations are historically high across regions, so 2026 returns are likely to come from profit growth rather than P/E expansion, and advises continued geographic and factor diversification—with increased focus on emerging markets and non-tech beneficiaries of AI capex. Commodities are expected to see mixed moves (precious metals up, energy down), and analysts note markets are in a late-cycle optimism phase that creates upside risks but elevates valuation sensitivity.

Analysis

Market structure: Goldman’s call (12‑month +9% price / +11% w/dividends) implies earnings—not multiple expansion—drive returns, favoring exporters, industrials and commodity‑adjacent miners (GLD/GDX) while pressuring energy producers if oil stays under $75/bbl. Tech remains a leader but with lower bubble risk; dispersion is rising (correlations down), so stock‑specific alpha should outpace beta. Valuations are elevated across regions—expect 6–12 month returns to hinge on quarterly profit beats of +3–7% above consensus.

Risk assessment: Key tail risks are a Fed hawkish surprise (e.g., two additional 25bp hikes if CPI prints >0.3% m/m over next two months) or a China hard landing (PMI <48 for two months) that would shave 10–20% off risk assets. Time horizons matter: immediate (days) risk of 3–8% profit‑taking, short term (3–6 months) earnings re‑ratings, long term (12+ months) fundamentals/AI capex cycles. Hidden dependencies include USD/FX flows—further USD weakness would amplify EM/commodity rallies—while low correlations reduce hedge effectiveness.

Trade implications: Tilt into EM and non‑tech beneficiaries of AI capex (industrial suppliers, machinery) and gold miners; underweight pure energy exposure and momentum names lacking earnings. Use low-cost directional exposure (ETFs) plus targeted options for convexity: buy call spreads on industrial names and cheap put protection on concentrated US tech indices. Entry: stagger over 2–6 weeks to avoid near‑term volatility; size positions 1–3% each with explicit stops.

Contrarian angles: Consensus underestimates non‑tech beneficiaries of AI (industrial automation, materials, logistics) and overestimates a uniform AI bubble—selection matters. The optimism phase historically precedes 5–15% volatility drawdowns; thus shorting mega‑caps is risky unless macro weakens—prefer relative/value pair trades and disciplined tail hedges. An unintended consequence: falling correlations can turn single‑name shocks into portfolio moves; keep 3–5% cash to rebalance on 8–12% drawdowns.

Key Decisions for Investors

• Establish a 2.5% long position in VWO (Vanguard FTSE Emerging Markets ETF) over the next 10 trading days; target +15% absolute return in 12 months, stop-loss -8%. Rationale: GS expects EM to be a diversification beneficiary with potential currency tailwinds if USD weakens.
• Implement a pair trade: long industrial/AI‑beneficiary exposure (2% notional in CAT via buy 6‑month call spread: long 20% OTM call, short 35% OTM call) financed by a 1.25% short position in SPY for a 6–12 month horizon. Rationale: capture earnings upside from capex spillovers while limiting outright long beta.
• Buy GLD equal to 1.5% of portfolio as a 3–9 month hedge against policy easing and precious‑metals upside; take profit if GLD rises >18% or cut at -7%. Rationale: Goldman forecasts precious metals gains offsetting energy declines.
• Short XLE (Energy Select Sector ETF) sized 1.5% of portfolio over 3–9 months; stop-loss +8% or exit if WTI crude >$80 for two consecutive weeks or inventory draws persist. Rationale: GS expects energy to lag while metals/precious outperform.
• Purchase a 3‑month tail hedge: buy 1% portfolio notional of 5% OTM puts on QQQ (or put spread to limit premium) to protect against a 10–15% tech drawdown around the next two major earnings cycles; roll or reassess after CPI and Fed minutes releases.