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.

Look Beyond America

Goldman is making a strong case for spreading your bets around the globe. In 2025, something remarkable happened: U.S. equities actually underperformed markets in Europe and Asia for the first time in nearly 15 years. Geographic diversification, often dismissed during America's long winning streak, suddenly paid off.

The firm expects this trend to continue through 2026. As the valuation gap between U.S. stocks and international markets narrows, investors should consider opportunities in emerging markets and sectors positioned to benefit from the "spillover" effects of AI capital expenditure, rather than solely chasing large-cap technology names.

No Tech Bubble Here

Speaking of technology stocks, Goldman addressed the inevitable bubble concerns. Despite the "intense" focus on artificial intelligence and sky-high valuations for many tech companies, the report concludes that we're nowhere near dot-com territory.

Current tech valuations, while elevated, are backed by actual profit growth that justifies premium pricing. The disparity between tech stocks and the broader market remains far below the extreme levels witnessed during the 2000 peak, when companies with no earnings commanded astronomical prices.

2026 Performance So Far

The year has started on a positive note for major indices. The S&P 500 has gained 1.44% year-to-date, while the Dow Jones has advanced 3.09%. The Nasdaq 100 has climbed 1.03% over the same period.

The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 respectively, both closed higher on Monday. SPY rose 0.16% to $695.16, while QQQ advanced 0.083% to $627.17.

Futures for the S&P 500, Nasdaq 100, and Dow Jones indices were trading lower on Tuesday.