Broader earnings improvement drives global equities higher, while AI trades enter a high-volatility deleveraging phase

Overview

The report reviews global market performance through August 7, 2026, and assesses the global equity environment from perspectives including macro forecasts, earnings revisions, valuations, styles, fund flows, volatility, and cross-asset correlations. Global equities continued to rise and risk appetite strengthened further, but high volatility in AI trades, falling energy prices, and positioning adjustments in some markets indicate that internal dispersion within the rally is widening.

Core views

First, the rise in global equities is gaining broader earnings support and is no longer entirely dependent on a small number of AI leaders. Second, emerging market earnings momentum remains supportive, with technology in South Korea and Taiwan, China as the main drivers, while financials, industrials, and energy are also starting to contribute to upgrades. Third, although the South Korean market has corrected sharply in the near term, lower valuations, cleaner positioning, AI capital expenditure, and memory supply-demand dynamics continue to support a positive medium-term view. Fourth, AI and technology stocks are undergoing momentum-driven deleveraging, and short-term volatility may remain elevated. Fifth, global risk appetite is strong, but extremely high U.S. equity valuations require investors to place greater emphasis on regional, sector, and style selection.

Analysis framework

The report combines weekly performance of MSCI regional and sector indices, Goldman Sachs macro and market target forecasts, earnings expectation revisions, forward P/E ratios and historical percentiles, risk and sentiment indicators, EPFR fund flows, relative style performance, and rolling correlations between equities and bonds, foreign exchange, and commodities to form a comprehensive assessment.

Methodology notes

• Risk sentimentGoldman Sachs Risk Appetite Indicator (GSRAII)

  Cross-asset risk appetite

  The indicator is based on 27 cross-asset pairs and measures risk appetite using standardized scores relative to performance over the past two years; the current reading rose above 1.0.

• Market cycleGoldman Sachs Bull/Bear Market Indicator (GSBLBR)

  Macro and valuation cycle risk

  The indicator combines historical percentiles of variables including the Shiller P/E ratio, unemployment rate, yield curve, ISM, private-sector financial balances, and core inflation; the current overall reading is at the 70th percentile.

• Earnings analysisEarnings revisions and earnings sentiment

  Changes in analyst expectations

  The report compares earnings momentum across regions and sectors through 2026 and 2027 EPS revisions and the proportion of upward revisions minus downward revisions over the past month as a share of total estimates.

• Valuation analysisForward P/E ratio and historical percentiles

  Relative valuations by region, sector, and style

  The report uses 12-month and 24-month forward P/E ratios and compares them with historical ranges over the past 20 years to assess valuation differences across regions, sectors, value versus growth, and large versus small caps.

• Forecast comparisonGoldman Sachs top-down forecasts versus market consensus

  Macro and earnings expectation gaps

  The report compares Goldman Sachs' GDP, EPS, and cross-asset target forecasts with bottom-up market consensus expectations to identify potential upside or downside.

• Fund flow analysisEPFR regional equity fund flows

  Changes in global investor allocations

  Based on monthly and month-to-date weekly flows of active and passive funds, the report compares cumulative fund allocations across developed markets, emerging markets, and different regions.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• MSCI AC World

  Core observation indicator for global equities

  Strengths

  Rose 2.9% for the week, risk appetite strengthened, and earnings improvement broadened.

  Weaknesses

  Valuation levels are relatively high, and performance is diverging within regions and sectors.

  Comparison

  The United States outperformed Japan and Europe, and the technology sector significantly outperformed the energy sector.

  Risks

  AI trade deleveraging, weaker-than-expected macro data, and valuation compression.

• S&P 500

  Benchmark for the U.S. equity market

  Strengths

  The twelve-month target is 8300, implying potential upside of 7.0% from the current level.

  Weaknesses

  The Shiller P/E ratio is at the historical 98th percentile, leaving limited valuation cushion.

  Comparison

  Expected upside is lower than MSCI Asia Pacific ex-Japan and Topix.

  Risks

  Higher-than-expected inflation, interest rates remaining elevated, and reversal of crowded technology trades.

• South Korean equities

  High-beta market for the AI and memory supply chains

  Strengths

  Continued AI capital expenditure, tight memory supply, positive earnings expectations, and cleaner positioning.

  Weaknesses

  Large near-term decline and sensitivity to technology and AI cycles.

  Comparison

  Technology in South Korea and Taiwan, China are the main contributors to earnings upgrades in emerging markets.

  Risks

  Momentum deleveraging, regulatory tightening, and further contraction in leveraged ETFs and margin financing.

• Emerging market equities

  Assets benefiting from earnings upgrades and regional rotation

  Strengths

  2026 and 2027 earnings expectations continue to be revised upward, with contributions extending to financials, industrials, and energy.

  Weaknesses

  Regional differences are large, and some markets remain affected by exchange rates and fund flows.

  Comparison

  Earnings momentum has greater improvement potential relative to developed markets, but risks and volatility are usually higher.

  Risks

  A stronger U.S. dollar, slower global growth, capital outflows, and policy uncertainty.

• Information technology and AI-related stocks

  Important drivers of global equity gains and earnings growth

  Strengths

  The information technology sector rose 5.5% for the week, and multiple regions received overweight recommendations.

  Weaknesses

  Recently there has been large-scale selling of long technology positions that is rare over the past decade, and trade crowding remains high.

  Comparison

  Near-term performance was significantly stronger than energy, but divergence within the AI supply chain widened.

  Risks

  Momentum breakdown, lower-than-expected returns on capital expenditure, valuation compression, and rising volatility.

• Gold

  Main upside commodity in Goldman Sachs' cross-asset forecasts

  Strengths

  The twelve-month target is $5115/oz, implying potential upside of 17.4% from the current price.

  Weaknesses

  High price levels may increase near-term profit-taking pressure.

  Comparison

  The forecast direction is clearly better than Brent crude oil and copper.

  Risks

  Rising real interest rates, a stronger U.S. dollar, and declining safe-haven demand.

• Brent crude oil

  Important driver of the energy sector and inflation expectations

  Strengths

  It remains a global benchmark commodity and can be supported by supply disruptions.

  Weaknesses

  It fell more than 8% last week, and the twelve-month target is below the current price.

  Comparison

  Forecast returns are weaker than gold and natural gas.

  Risks

  Slowing demand, increased supply, and downward revisions to energy equity earnings expectations.

Key data

• MSCI AC World weekly return+2.9%One-week price return in U.S. dollar terms.
• Weekly returns for the United States, Japan, and Europe+3.7%, +2.6%, +2.1%The United States led major regional markets.
• Information technology sector weekly return+5.5%AI trade volatility intensified, but the technology sector as a whole still rose significantly.
• Weekly returns for the energy sector and Brent crude oil-3.1%, -8.4%Energy was the main declining sector, with oil prices a significant drag.
• Risk appetite indicatorGSRAII above 1.0Risk appetite rose further from a level that was already positive.
• Shiller P/E ratio41.7, historical 98th percentileIndicates that long-term U.S. equity valuations are at an extremely high level.
• S&P 500 twelve-month forecast8300, potential upside of 7.0%The current level is 7758, with pricing as of the close on August 7, 2026.
• MSCI Asia Pacific ex-Japan twelve-month forecast1080, potential upside of 25.6%The most prominent potential upside among the major equity indices listed in the report.
• Topix twelve-month forecast4500, potential upside of 10.4%The current level is 4075.
• Gold twelve-month forecast$5115/oz, potential upside of 17.4%The current price is $4355/oz.
• Brent crude oil twelve-month forecast$74/bbl, potential downside of 11.4%The current price is $83.6/bbl.
• 2026 global real GDP growth forecast2.5%Below the market consensus of 2.8%; the 2027 forecast is 2.8%, above the market consensus of 2.6%.

Impact & implications

For asset allocation, broader earnings improvement is favorable for the continuation of the global equity rally and provides a basis for rotation into emerging markets, South Korea, and non-single-AI sectors such as financials and industrials. Goldman Sachs' regional sector recommendations generally favor information technology, and in Asia Pacific ex-Japan it recommends overweighting energy, industrials, and communication services. However, AI momentum trades are deleveraging, and U.S. valuations are at extremely high historical percentiles, increasing the risk of chasing crowded assets. Cross-asset forecasts point to upside opportunities in gold and natural gas, while maintaining relative caution on Brent crude oil, the euro, and the British pound.

Risks

• Continued deleveraging in AI and technology long trades could trigger broader liquidation of momentum strategies.
• The Shiller P/E ratio is at the historical 98th percentile, and high valuations reduce the market's tolerance for earnings or macro disappointments.
• If U.S. CPI, European inflation, and signals from major central banks are more hawkish, they could push rates higher and weigh on equity valuations.
• Continued weakness in Brent crude oil could drag on energy sector earnings while also reflecting cooling global demand expectations.
• Emerging markets and South Korea are relatively sensitive to the technology cycle, the U.S. dollar, foreign capital flows, and regulatory changes.
• Risk appetite indicators are already at elevated levels; if sentiment reverses, drawdowns in crowded assets may be amplified.

What to watch

• U.S. CPI and public remarks by Fed officials Hammack and Barkin.
• UK GDP, Eurozone GDP and industrial production, and inflation data from Germany, Italy, Norway, and Sweden.
• The Bank of Japan's summary of opinions from its July meeting and Japan's domestic corporate goods prices.
• China's July credit and inflation data, second-quarter GDP in Singapore and Malaysia, and inflation in India.
• Whether 2026 and 2027 emerging market EPS revisions continue to expand into non-technology sectors.
• Whether the scale of South Korean leveraged ETFs, margin financing, and hedge fund positioning declines further.
• Whether AI capital expenditure, the tightness of memory supply, and selling of long technology positions ease.
• Whether GSRAII, equity fund flows, and volatility indicators confirm the sustainability of risk appetite.