"Great changes" in the global market: "Entity" returns, "technology" differentiates

# Source: Wall Street CN

# Bu Shuqing

Goldman Sachs: The global bull market is **not over**, but its drivers have shifted. Capital is rotating from crowded U.S. tech stocks into emerging markets, commodities, and value stocks. While AI capex remains elevated, ROI anxiety is intensifying, the Magnificent Seven are diverging sharply, and the software sector is undergoing a valuation reset. Constraints on data centers and energy are becoming prominent, benefiting “old economy” sectors such as utilities. Physical assets and value styles are being re-rated, and the importance of diversified allocation is rising.

If you are still blindly buying into the narrative that “U.S. tech is the only game in town,” it’s time to wake up. Goldman Sachs’ latest global strategy report reveals an ongoing paradigm shift: the bull market is not finished, but its engine has been completely replaced.

According to追风交易台 (Zhuifeng Trading Desk), analyst Peter Oppenheimer and his team at Goldman Sachs state that the long era in which “financial assets” dominated “physical assets” is reversing. In 2025, the U.S. market lagged other major global markets for the first time, and emerging markets have staged a strong comeback. Global markets are in a late-cycle “optimistic” phase, but sharp internal divergence is taking place:

- **Asset rotation**: Capital is moving from overcrowded U.S. tech into emerging markets (EM), commodities, and “old economy” value stocks.

- **AI disillusionment and divergence**: AI capital expenditure has reached $659 billion, but ROI anxiety is spreading. The Magnificent Seven no longer rise or fall in lockstep, with dramatic internal performance splits.

- **Software industry crisis**: The emergence of AI agents is seen as disruptive to the traditional SaaS model, leading to a sharp de-rating in the software sector.

- **Physical assets prevail**: Growth in the digital world is now constrained by the physical world (energy, data centers), causing a surge in capex for utilities and capital-intensive industries and boosting the value of real assets.

## The global bull market continues, but U.S. stocks are no longer the sole protagonist

A historic shift quietly occurred in 2025. Although the S&P 500 remained strong, the U.S. market underperformed other major markets in both local currency and U.S. dollar terms.

Data show that Europe’s STOXX 600, Japan’s TOPIX, and MSCI Asia Pacific ex-Japan all outperformed the S&P 500.

Even more striking is the comeback of emerging markets. Long-underperforming EM have seen a meaningful re-rating relative to developed markets. The MSCI Emerging Markets relative performance index versus DM has climbed from 100 to nearly 120 since early 2025.

Goldman Sachs analysts believe this trend is driven by improving macro and micro fundamentals, with relative valuations still attractive, and expect the momentum to continue.

## Markets ignore policy uncertainty as earnings growth stays strong

Despite frequent geopolitical events and surging policy uncertainty, equities have shown remarkable resilience, nearly brushing off these risks. This strength is mainly driven by solid fundamentals:

- Global economic confidence is improving, with cyclical sectors outperforming defensive ones.

- U.S. corporate earnings growth remains robust, rising above 12% this earnings season — 5 percentage points above consensus — and posting double-digit growth for five straight quarters.

Growth is no longer led solely by large tech. The median S&P 500 company grew 9% YoY, and 59% of firms beat estimates.

Analysts have unusually raised their full-year 2026 earnings forecasts as early as Q1, a trend especially strong in emerging markets.

## AI capex boom and the split within the Magnificent Seven

This is the key warning for tech investors: the AI wave is shifting from “broad boom” to “brutal divergence.”

Market expectations for AI hyperscaler capex in 2026 have been raised to **$659 billion**, up 60% from 2025. While the absolute figure is rising, growth is expected to slow from last year.

However, such massive spending has raised doubts over whether sufficient returns can be delivered. This has led to slower reward for tech stocks, with the Magnificent Seven’s returns declining year by year: surging 75% in 2023, falling to around 50% in 2024, and below 25% in 2025.

Meanwhile, the seven giants are no longer moving in tandem. In 2025, Google returned roughly 66%, contributing 15% of the S&P 500’s total return; Microsoft, Meta, and Tesla delivered only low double-digit returns; Apple and Amazon fell to single digits, underperforming the broad market. Return correlations between the giants have dropped sharply.

## Software’s darkest hour: bitten back by AI

The AI innovation wave is not only splitting hyperscalers but also threatening disruption to existing tech business models.

The launch of new agent platforms such as Anthropic’s Claude Cowork and OpenAI’s Frontier has sparked fears that existing tech business models — especially in software — could be disrupted.

Heading into 2026, market expectations for the software sector reached their highest level in at least 20 years, with consensus forward two-year revenue growth of 15% — more than double the 6% median for S&P 500 companies.

However, the U.S. software sector plunged 15% last week (nearly 30% below its September high), reflecting a sharp downward revision to record-high margin and growth expectations. This valuation reset marks a fundamental reassessment of the sector’s growth outlook.

## The return of “physicality”: the revival of the old economy

A profound shift is underway: for the first time in 25 years since the commercialization of the internet, tech growth prospects are heavily dependent on physical assets — data centers and energy supply.

As hyperscaler capex surges, spending is spilling over into other industries, particularly utilities and sectors building out infrastructure, on which the future growth of leading tech giants now depends.

Data show that capex-to-sales ratios are rising for utilities, telecoms, and commodity producers in developed markets. These “old economy” industries have suffered from underinvestment since the financial crisis, plagued by overcapacity and historically low returns.

AI infrastructure spending, combined with a revival in defense outlays, is reigniting returns in many long-neglected physical assets, just as investors worry that returns in tech are slowing from record highs. This has led to a meaningful decline in the valuation premium of asset-light companies relative to capital-intensive ones.

## Value stocks’ comeback: from value traps to value creators

The reassessment of growth rates in parts of tech, coupled with persistent inflation and higher real rates, has refocused investors on long-overlooked opportunities in value stocks.

Once widely seen as “value traps,” some of these stocks are successfully transforming into “value creators,” generating higher cash flow and returning more capital to shareholders via dividends and buybacks.

The 12-month forward P/E premium of growth stocks over value stocks has declined across the U.S., Europe, Japan, emerging markets, and globally.

Since early 2025, the performance pattern between financial and physical assets has reversed dramatically: gold, EM, TOPIX, industrial metals, and value stocks have led the way — a stark contrast to the Nasdaq-, S&P 500-, and tech-dominated regime from the post-financial crisis era through the end of the pandemic.

## The era of diversification arrives

The post-financial crisis to post-pandemic era was dominated by exceptional tech growth and zero-interest-rate policy, driving a record gap between returns on financial assets and physical assets.

Abundant liquidity and historically low capital costs meant the longest-duration assets — Nasdaq, S&P 500, and tech — performed best. Between 2009 and 2020, the Nasdaq surged more than 900%, while real-economy prices such as commodities, wages, and GDP saw limited gains.

Today’s landscape is clearly different. While U.S. corporate earnings growth remains strong — 12% this quarter, 5pp above consensus, with the median S&P company up 9% and 59% beating estimates — the sources of growth are broadening.

More importantly, full-year 2026 forecasts have been unusually raised in Q1, with even larger upgrades in emerging markets.

Goldman Sachs believes equities will likely remain the best-performing asset class, but drivers and return opportunities are fundamentally broadening. While headline index returns may slow, a greater variety of diversification opportunities offer a better outlook for risk-adjusted returns and alpha generation. Investors need to rethink long-standing allocation inertia and achieve wider diversification across regions, sectors, and style factors to capture opportunities in this era of dramatic market change.

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Content provided by 追风交易台 (Zhuifeng Trading Desk).

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