Written by: Rita

The pro-cyclical rotation of the summer asset market continues, but momentum is slowing.

On September 2, Goldman Sachs released its Global Opportunity Asset Allocator report, maintaining a 12-month overweight position in stocks and an underweight position in credit, tactically holding a neutral stance on equities. Since June, global stock markets have fluctuated within a range, with beneficiaries of AI capital expenditures experiencing sell-offs, while market breadth has improved significantly. The equal-weight S&P 500 outperformed the Nasdaq by 16% in June and July. Goldman Sachs believes that sustained profit growth should support stocks outperforming bonds and credit over the next 12 months, but returns may slow as profit growth and profit revisions peak. In the short term, interest rate volatility, seasonal weakness, the U.S. midterm elections, and geopolitical risks may elevate volatility.

Profit growth supports mid-term stock performance, but return slope will slow

Goldman Sachs’ optimistic view on stocks is based on profit fundamentals. Global equity holdings' returns (initial dividend yield plus expected profit growth over the next 12 months) have risen significantly this year, with double-digit profit growth and positive revisions achieved in all regions.

The peaks of profit growth and profit revisions are likely already behind us. Since June, global stock markets have fluctuated within a range, with significant reversals in positions among beneficiaries of AI capital expenditure, while sectors outside of AI outperformed. The equal-weight S&P 500 outperformed the Nasdaq by 16% in June and July, which is a clear signal of improved market breadth. Goldman Sachs expects earnings growth rates to remain in double digits by 2027, but below current levels, and the excess returns of stocks over bonds will accordingly narrow.

In terms of valuation, profit growth has driven valuations down continuously, with the MSCI World Index's 12-month forward price-to-earnings ratio decreasing significantly this year. Goldman Sachs’ equity tail risk framework shows that the probability of a large-scale equity drawdown has fallen to normal levels, but the potential for another strong rebound is likewise limited. This is a typical characteristic of the late economic cycle, where high valuations restrict upside potential, and the structural tailwinds brought by AI may not be fully captured by the framework.

Goldman Sachs maintains an overweight position in Asia and the U.S., while being underweight in Europe, believing that Asia has the greatest upside potential, while Europe faces dual resistance from TTF natural gas prices and political risks.

Long-term interest rates becoming the speed limiter for the stock market

Long-term bond yields are approaching or even exceeding the peaks after the global financial crisis. Supporting factors stem from three aspects: a strong cyclical backdrop, the capital competition squeeze effect brought about by AI investments, and concerns about fiscal sustainability.

Goldman Sachs points out that accelerating nominal growth is the key factor pushing up bond yields, while also supporting profit growth, allowing stocks to better absorb rising yields despite contracting valuations. If yields rise too quickly—for example, due to a surge in energy prices, a more hawkish Fed, or increased term premiums—it may trigger more severe market discomfort. Data shows that when the yield on 10-year U.S. Treasuries rises more than 2 standard deviations within three months, it typically has a significant drag on stocks.

A more fundamental change is that bonds’ function as risk mitigation tools is degrading. Goldman Sachs believes the current environment resembles the pre-1990s model, where bonds are more a source of income rather than a hedging tool. Even if inflation normalizes before year-end, restoring the negative correlation between stocks and bonds, the effectiveness of bonds as a hedge may be weaker than in the past 30 years. The protective layer of the traditional 60/40 investment portfolio is thinning.

The dominance of AI tech stocks increases portfolio risk, making style diversification critical

Over the past three years, the AI-driven tech stock rally has pushed the weight and allocation of relevant stocks to levels seen during the tech bubble periods of the 1920s, 1950s, and late 1990s. Although the breadth of the market has improved over the summer, tech stocks remain the main contributors to global stock returns this year. This concentration is equally evident in Asia, where semiconductor companies dominate regional returns.

Unlike U.S. mega-cap companies with strong balance sheets and abundant cash flow, global semiconductor companies are highly correlated and cyclical. Once the AI theme reverses, the downside risk of related sectors is greater.

Against the backdrop of reduced protection from bonds, internal diversification within stocks has become more important. The correlation between the S&P 500 and low-volatility, high-dividend stocks has significantly decreased, resembling patterns seen during the tech bubble period. Goldman Sachs recommends a barbell strategy, allocating to global AI-related stocks on one end, while also investing in high-dividend, low-volatility defensive sectors on the other. Regional diversification has also demonstrated its effect, as non-U.S. stocks have generally outperformed the S&P 500 since 2024, with the North Asia market leading this year, primarily driven by accelerated AI capital expenditure.

The allocation value of gold and real assets is becoming prominent

The U.S. Treasury’s foreign exchange and bond market interventions have triggered a strong rebound in gold as well as dollar policy hedging tools such as Bitcoin and the Swiss franc. Goldman Sachs’ commodities team maintains its forecast for gold’s fair value to be $4,900 per ounce by the end of 2026, based on sustained central bank demand for gold and private ETF fund inflows in a scenario where the Fed remains inactive.

The correlation of gold with global investment portfolio benchmarks has significantly decreased, providing further evidence for the diversification value of real assets. Goldman Sachs points out that replacing the bond portion of a 60/40 portfolio with gold or broadly defined real asset portfolios over the past five years has significantly enhanced risk-adjusted returns.

Goldman Sachs maintains a neutral view on commodities overall. Despite the recent escalation of the situation in the Strait of Hormuz, the team expects Brent crude oil to drop to $80 per barrel by the end of the year. Actual oil exports from the Persian Gulf have increased by 40% from the March lows, with rising volumes through gray channels, coupled with price-sensitive net crude oil imports from China. Even if there are ongoing disruptions in the Middle East, the upside potential for oil prices may be limited. The rise in gold prices may be more volatile, with demand for bullish options surging, leading to increased bidirectional volatility.

Goldman Sachs maintains an underweight position on credit. Credit spreads remain tight, and debt issuance related to AI capital expenditures poses dual pressures on credit, pushing up government bond yields while widening credit spreads, especially compared to non-AI issuers. Historical experience indicates that during the restructuring and deleveraging phase of the late cycle, stocks typically outperform credit. Goldman Sachs expects credit spreads to widen moderately before year-end.

Goldman Sachs' core allocation framework is: maintain investments, buy on dips, and manage risks through diversification and selective hedging tools.

Disclaimer

This article is a整理 and interpretation by潮向研究 of third-party brokerage research reports (Goldman Sachs, September 2, 2026), combined with整理 of public market information. The ratings, target prices, earnings forecasts, and related judgments quoted in the text are solely the views of the respective brokerage analysts and represent the positions of their affiliated institutions, and do not represent the views of潮向研究, nor does it constitute any investment advice.

Markets are risky, and decisions should be independent. This article should not be used as a basis for buying or selling any securities.