Core Viewpoint - Goldman Sachs predicts that the global market in 2026 will experience a "Game of Ice and Fire," characterized by robust growth, declining inflation, and Federal Reserve rate cuts on one hand, and overheated asset valuations, particularly in AI, on the other hand, leading to increased volatility [1][3]. Group 1: Economic Outlook - The combination of steady global growth and non-recessionary rate cuts by the Federal Reserve is expected to benefit global stock markets and emerging market assets [4]. - Goldman Sachs holds a more optimistic view on the U.S. economy, forecasting a 2.5% year-on-year GDP growth in Q4 2026, significantly above the market's implied expectation of about 1.7% [5]. - The report anticipates that 2026 will mark the end of the high inflation period that began in late 2021, driven by the easing of tariff impacts, productivity gains from AI, and continued low-cost goods supply from Asia [7]. Group 2: Central Bank Policies - Despite a general trend towards easing due to declining inflation, the rate cut paths in 2026 will vary significantly among central banks, with the Federal Reserve, Bank of England, and Norges Bank expected to have more room for rate cuts [9][10]. - Many high-rate emerging market economies are also expected to significantly lower policy rates [9]. Group 3: AI and Market Dynamics - The AI trend will remain a focal point in 2026, with productivity benefits just beginning to materialize, but market valuations have already significantly outpaced macro fundamentals [11]. - The reliance on debt financing for data center construction may render the credit market more vulnerable, potentially leading to increased stock volatility and widening credit spreads [11]. Group 4: Currency and Trade - The Chinese yuan is expected to continue its gradual appreciation trend, with the trade surplus exceeding $1 trillion in November 2025, indicating a level of undervaluation comparable to the mid-2000s [12]. - The foreign exchange market in 2026 is anticipated to exhibit more cyclical characteristics, with G10 currencies and certain emerging market currencies likely to benefit from stronger-than-expected growth in the U.S., China, and other emerging markets [15]. Group 5: Emerging Markets and Investment Strategy - Following a strong performance in 2025, emerging market assets are expected to deliver "good" rather than "great" returns in 2026, prompting a shift in investment strategy from tech-sensitive markets to those driven by domestic demand, such as South Africa, India, and Brazil [18]. - The report emphasizes the importance of risk management in the post-cycle phase, highlighting potential downturn risks from a deteriorating U.S. labor market and upside risks from economic overheating [19]. Group 6: Risk Management and Hedging - Investors are advised to diversify their portfolios and utilize tools such as interest rates, foreign exchange, gold, and equity volatility products to seek protection against potential risks [20].