“Consequently, we think that returns in 2026 are likely to be driven more by fundamental profit growth rather than by rising valuations,” Oppenheimer writes. Our analysts’ 12-month global forecasts indicate equity prices, weighted by regional market cap, are expected to climb 9% and return 11% with dividends, in US dollars (as of January 6, 2026). “Most of these returns are earnings-driven,” he adds.
Commodity indexes are also expected to advance this year, with gains in precious metals again offsetting declines in energy, as occurred in 2025, according to a separate Goldman Sachs forecast.
Oppenheimer’s team examines what typically happens as markets move through cycles: despair as stocks fall in a bear market; a short hope phase as the market rebounds; a longer growth period when earnings increases drive returns; and finally optimism, as investors become confident and perhaps even complacent.
Their analysis suggests stocks now are in the optimism phase of a cycle that began with the bear market in 2020 during the Covid pandemic. “The late-cycle optimism phase typically sees rising valuations, suggesting some upside risks to our central forecasts,” our team writes.
Should investors diversify their stock portfolios in 2026?
Geographic diversification benefited investors in 2025, which is unusual; the US underperformed some other major markets for the first time in nearly 15 years. Equity returns in Europe, China, and Asia generated almost double the total returns for the S&P 500 in dollar terms as the US currency declined.
While US equities were driven by earnings growth, particularly for large technology companies, outside the US there was a more even balance between improving earnings and rising valuations. The gap in growth-adjusted valuations between US equities and the rest of the world narrowed last year.
“We expect these growth-adjusted valuation ratios to continue to converge in 2026, even as absolute valuations in the US remain higher,” Oppenheimer’s team writes.
Diversification should continue to offer potential for better risk-adjusted returns in 2026, Oppenheimer writes. Investors should look for opportunities for broad geographic exposure, including an increased focus on emerging markets. They should seek a mix of growth and value stocks and look across sectors. And they may watch for the possibility that stocks move less in lockstep, creating a good opportunity for picking individual names.
