Goldman Sachs' Greg Calnon talks investing opportunities in 2026

Market Trends & Opportunities - Macroeconomic environment is constructive for risk assets heading into 2026, identifying opportunities across small caps, international markets, and fixed income [1] - Small caps, as indicated by the Russell 2000, are up nearly 10% this year, while the S&P 500 is up approximately 135% [2] - International developed markets are up 25% this year [10] - Broadening of equity markets is expected, with opportunities across sectors within the S&P 500, particularly in AI and healthcare [7][8] Federal Reserve & Interest Rates - Anticipation of Federal Reserve rate cuts has positively impacted small caps [2][3] - Small cap performance is correlated with the perceived probability of Fed rate cuts [3][4] - Expectation of Fed rate cuts makes it sensible to build income in portfolios beyond government bonds [13] Small Cap Innovation & AI - Small caps are seen as AI innovators with opportunities in niche markets, not directly competing with hyperscalers [4][5][6] - There are opportunities for small caps to compete in niche AI markets [5] International Markets - Fiscal expansion in Germany and a new administration in Japan supportive of fiscal expansion are expected to drive growth in international markets [9] - International markets are expected to continue outperforming the US, though not necessarily at the expense of the US market [10][11] Investment Strategies - Downside protection is important in portfolios due to market uncertainty and complexity [12][13] - Strategies for generating higher yields include international stocks with higher dividend yields, securitized high yield, and option-based income strategies within the S&P 500 [13][14] - Exposure to mega-cap tech AI hyperscaler trade should be market cap neutral [15]