Here's something you don't hear every day on Wall Street: stocks are expensive, but buy them anyway. That's essentially Goldman Sachs Research's message for 2026, projecting that global equities will deliver 11% total returns over the next year despite valuations that would make even optimistic investors a bit queasy.
Earnings Take Center Stage
The key, according to Goldman, is that this year's gains won't come from investors deciding stocks deserve even higher prices. Instead, actual profit growth will do the heavy lifting. The firm expects equity prices to climb 9% globally, with dividends contributing the additional 2% to reach that 11% total return in U.S. dollar terms.
Peter Oppenheimer, Goldman's chief global equity strategist, describes the current environment as the "optimism phase" of the market cycle. Typically, this phase sees valuation multiples expand as investors get increasingly comfortable paying more for each dollar of earnings. But this time around, analysts believe gains will be firmly "earnings-driven" rather than fueled by enthusiasm alone.
Expensive Doesn't Mean Doomed
Let's address the elephant in the room: stocks are pricey. Goldman's report acknowledges that valuations have reached "historically high levels" across the U.S., Japan, and Europe. So why isn't the firm sounding alarm bells?
The answer comes down to what actually causes bear markets. According to Oppenheimer, significant market downturns rarely happen without an economic recession tagging along. With the global economy expected to keep expanding and the Federal Reserve likely to provide additional modest easing, the macroeconomic environment remains supportive of equity prices.
"It would be unusual to see a significant equity setback... even from elevated valuations," Oppenheimer writes. In other words, high prices need a catalyst to collapse, and that catalyst typically comes from deteriorating fundamentals, not just sticker shock.