In late 2024, Goldman Sachs made a contrarian yet calculated call: investors should start looking beyond U.S. equities, particularly large-cap tech, which had driven most of the S&P 500's rally in recent years. Instead, the firm encouraged portfolio diversification into non-U.S. markets, emphasizing Europe and parts of Asia, especially China.

By mid-2025, this recommendation has proven prescient. With the S&P 500 showing signs of exhaustion and valuations peaking, several non-U.S. markets are outperforming on both absolute and risk-adjusted terms. Goldman’s positioning wasn’t just a tactical shift—it reflected a deeper, forward-looking view of global capital rotation, earnings dispersion, and valuation normalization.

More Articles: 

Why Goldman Anticipated the Underperformance of U.S. Equities

Goldman’s strategy team, led by Peter Oppenheimer and David Kostin, pointed to three critical drivers for this geographic shift:

  1. Valuation Extremes: By late 2024, U.S. equities were trading at a forward P/E ratio of 22, well above historical averages and far higher than European (14–15) and Asian (11–13) markets. The pricing premium was driven by a small cluster of tech mega-caps.

  2. Concentration Risk: Roughly 30–40% of the S&P 500’s performance came from just seven tech companies—Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla. Goldman saw this as unsustainable and vulnerable to both regulatory and earnings compression risks.

  3. Structural Deceleration: U.S. GDP and earnings growth forecasts were moderating, with Goldman projecting just 3% average annual returns for the S&P 500 over the next decade. This contrasted with stronger expected returns from undervalued and under-owned international markets.

2025 Performance: How Global Equities Are Beating the U.S. Market

So far in 2025, the global market performance has largely vindicated Goldman’s positioning:

  • Europe: Driven by fiscal expansion, a rebound in cyclical sectors, and defense-related industrial growth, European indices such as the DAX and FTSE have outpaced the S&P 500.

  • China: Despite lingering structural challenges, Chinese equities have bounced back strongly on the back of government stimulus, credit easing, and stabilization in the tech and property sectors.

  • Japan and Emerging Markets: A weaker yen, corporate governance reforms, and resilient exports helped push Japanese equities to multi-decade highs, while selected emerging markets benefitted from commodity demand and currency tailwinds.

Meanwhile, U.S. equities showed signs of stagnation. The market struggled with concentration fatigue, regulatory pressure on tech, and elevated interest rates, which weighed on growth stock multiples.

What Made Goldman’s Call Uncommon and Value-Added

Unlike generic rebalancing strategies, Goldman’s move was grounded in structural analysis rather than short-term market timing. Here's what differentiated their thesis:

  • Long-Term Return Forecasting: Instead of focusing on quarterly earnings surprises, Goldman projected decade-long return differentials, favoring low-P/E and high-dividend markets over overextended U.S. growth names.

  • Earnings Breadth: While U.S. earnings were increasingly concentrated in tech, Europe and Asia showed more balanced earnings growth across industrials, financials, and consumer sectors.

  • Geopolitical Risk Offsetting: By diversifying away from a single region, especially one heading into a contentious election cycle, investors could de-risk political volatility.

  • Inflation Hedge Assets: International equities, particularly in commodity-linked and value sectors, provided better inflation hedging characteristics than tech-heavy U.S. portfolios.

  • Capital Flow Rebalancing: Global institutional investors were underweight international markets. Goldman correctly predicted that capital would rotate to close this allocation gap as macro data outside the U.S. improved.

Strategic Lessons for Investors and Institutions

Goldman’s successful pivot provides several key lessons for professional and retail investors:

  • Geographic diversification is not dead: In an era of U.S. dominance, many dismissed global diversification as unnecessary. This call proves otherwise.

  • Valuation matters again: Markets can remain expensive for years, but eventually valuation discipline returns. Lower P/E ratios and higher dividend yields are regaining importance.

  • Concentration equals fragility: Overexposure to a few names or sectors, even high-performing ones, can lead to asymmetric downside when conditions change.

  • Global macro still drives returns: Inflation cycles, fiscal policy, and geopolitics remain critical. Ignoring international signals is no longer an option in a connected capital world.

Disclaimer:
This article is intended for informational purposes only and does not constitute investment advice. Procapitas does not provide personalized financial recommendations. Always consult a licensed financial advisor before making investment decisions. Information is based on publicly available sources as of June 2025 and Procapitas’ independent research and analysis.