(Bloomberg) — The Goldman Sachs Group Inc. strategist who correctly predicted Wall Street’s underperformance this year expects US equities to keep lagging for the next decade.
Peter Oppenheimer and his team recommended that investors increase diversification beyond the US as elevated stock valuations put a lid on gains. They expect the S&P 500 to achieve annual returns of 6.5% in the coming 10 years, the weakest among all regions. Emerging markets are projected to be strongest, at 10.9% a year.
After a decade of constantly superior performance, driven by a surge in technology stocks and the craze for artificial intelligence, the S&P 500 has lagged behind global peers significantly this year. The benchmark has climbed 16%, compared with the 27% rally in a worldwide MSCI Inc. index that excludes the US.
“Diversify beyond the US, with a tilt toward emerging markets,” Oppenheimer and his team wrote in a note. “We expect higher nominal GDP growth and structural reforms to favor EM, while AI’s long-term benefits should be broad-based rather than confined to US technology.”
In the coming years, the strategists expect emerging-market gains to be driven by strong earnings growth in China and India. Asia excluding-Japan is seen as the second-best performer with a 10.3% annual return. Japan is set to achieve 8.2%, underpinned by earnings growth and policy-led improvements in investor payouts. Europe is expected to hand investors a 7.1% annual return.
Oppenheimer, Goldman’s chief global equity strategist, early last year warned that US stocks were starting to look too expensive and began advocating for a shift into long-lagging international markets.
The S&P 500 (^GSPC) is trailing most regions in dollar terms in 2025, with earnings growth expected to converge globally next year, leaving the benchmark looking less attractive. Its forward price-to-earnings ratio has surged to 23, equivalent to the post-pandemic peak and within reach of the record hit prior to the dot-com bubble.
The US index now trades at a premium of more than 50% to global peers. The drivers that pushed S&P 500 prices and earnings higher in the past decade, such as rising margins, lower taxes and low interest rates, are unlikely to be as strong in the coming 10 years, the Goldman team said.
“The S&P 500 net profit margin and ROE currently stand near record highs, and many of the tailwinds to corporate profitability in recent decades are unlikely to boost profits to a similar extent going forward,” the strategists said.
