A comprehensive overview of the global markets from 2026 to now: What's rising? Why aren't the US stocks doing well? Will this trend continue?

Goldman Sachs believes the economic cycle is still early, but some assets are overvalued. They expect high volatility in AI and tech stocks, with funds continuing to flow into “cheap” cyclical assets. Investors should be cautious of high-valuation sectors and embrace emerging markets and old economy sectors that benefit from recovery to diversify their allocations and prepare for future fluctuations.

According to Wind Trading Platform, Goldman Sachs released a report on February 19 titled “Global Market Outlook: Cycles Favorable, Valuations Headwinds,” highlighting the core contradiction in global markets in 2026: the economic cycle is still early, but the market cycle is late. This means that despite macroeconomic data remaining strong, the “overvaluation” in some stocks and credit markets has become a vulnerability.

For investors, this creates a clear investment direction: embrace cyclical assets that benefit from economic recovery but remain undervalued, while being cautious of AI and large tech stocks that have already surged excessively.

Specifically, emerging market stocks, the Australian dollar, copper, and capital goods and materials sectors in the US stock market have risen sharply, while previously leading AI/large tech themes have experienced intense volatility. Goldman Sachs believes this cyclical rotation still has room to continue.

Economic data remains resilient: markets underestimate growth prospects

Growth data continues to support the performance of cyclical assets. The US ISM index has been rising over the past few months, with the surprise index turning positive, and the labor market stabilizing.

Globally, manufacturing PMI in developed markets reached its highest level in a year in January, and emerging market manufacturing PMI also increased month-over-month.

Goldman Sachs data shows that the market’s pricing for US economic growth remains below its full-year forecast of 2.5%. This indicates there is still room for the market to further raise expectations for the cycle.

More importantly, besides easing financial conditions and fiscal support in the US, Germany’s fiscal spending is driving a rebound in industrial momentum, and after the Liberal Democratic Party’s overwhelming victory in Japan’s elections, fiscal support will also be strengthened.

It’s not just about the cycle: the “physical return” of old economy assets

Since 2026, market performance has exhibited two prominent features. First, the continued strength of non-US markets. Second, sector performance is not simply a cyclical/defensive split: commodities and industrial sectors have performed well, as have US homebuilders and regional banks, but consumer staples have also remained strong.

This reflects a market reallocation from expensive tech stocks to cheaper exposures, especially in lagging areas in recent years, driving “value” to outperform “growth.” However, the market is also rewarding those benefiting from the traditional global industrial recovery—capital-intensive old economy sectors that have long lacked capital investment.

The continued underperformance of US stocks can be understood from two perspectives: the US market is expensive with a growth bias, and traditionally, it has less leverage to cyclical recoveries compared to Japan, Europe, or emerging markets.

AI theme faces turbulence: volatility becomes the norm

The background for AI-related themes has become more challenging. Goldman Sachs believes the productivity gains from AI are real, and the macro investment story still has room to develop. However, the market has already priced these benefits too high, mainly focusing on companies directly involved in the AI boom, while attention to debt-financed capital expenditures is rising.

Although capital expenditure forecasts for hyperscale cloud providers have surged, and new models and applications demonstrate increasingly powerful capabilities, these positive developments have triggered negative market reactions and intense rotation of crowded positions.

Markets worry about cash flow consumption by hyperscale cloud providers and potential disruption to software vendors and some financial/real estate sectors.

Goldman Sachs points out that within AI-related sectors, there is extreme divergence. Considering the pace of innovation, investment scale, and the accumulated value in AI-related tech stocks, volatility in this theme is likely to persist long-term.

Core assets remain calm, while fringe markets erupt

The intense 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. Meanwhile, within the US stock market, there is extreme divergence, with non-US indices like Korea, and commodities such as gold and silver, experiencing significant swings.

Notably, although US stock index volatility remains subdued currently, the implied volatility of the S&P 500 over longer horizons (1 and 2 years) has continued to rise to new highs for the year so far. Goldman Sachs considers that long positions in volatility, which are negatively correlated with stocks and have good liquidity, are a good addition to investment portfolios.

In credit markets, despite January’s resilience and record issuance being well absorbed, Goldman remains cautious. Higher volatility and potential large-scale redistribution of income among companies and sectors pose downside risks, and tight spreads may not provide sufficient compensation.

Weakening dollar: new and old drivers

The dollar’s decline is expected to continue into 2026, but the drivers have expanded. The trend centered on the euro in the first half of 2025 and focus on interest rate differentials in the second half remain visible.

Meanwhile, concerns over tariffs and the Federal Reserve’s independence reemerged in January, leading to a weakening of the dollar against the euro. The US stock market’s underperformance relative to Europe and Japan also provides new impetus for diversification and hedging discussions.

Currencies aligned with global cyclical views, 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 seen the largest gains against the dollar.

Additionally, many foreign exchange policies are receiving increased attention, especially Asian currencies with long-term valuations becoming very cheap.

Investment strategy: continue betting on cycles, but choose cheap assets

Goldman Sachs’s view is that there is still room for further upward revisions of growth expectations. This tailwind should continue supporting cyclical currencies and traditional cyclical sectors, particularly those still undervalued. The increasing volatility and complexity around the AI theme are likely to persist.

While the most intense moves may still be within major indices, periodic spillovers into index-level volatility are expected, gradually raising the lows over time. This combination still supports diversified equity holdings, maintaining healthy non-US exposure (including emerging markets), and long positions in index volatility over longer horizons.

In this context, core interest rates are more like hedging assets, especially in a backdrop of moderate inflation. After recent rebounds, the more immediate risk is yields rising again, particularly if the US labor market continues to stabilize.

For broader hedging, Goldman Sachs sees further upside for gold and energy prices, especially if geopolitical risks in the Middle East escalate again.

This insightful content is from Wind Trading Platform.

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