Goldman Sachs Projects U.S. Stocks to Underperform Global Markets for Next Decade

This analysis is based on Goldman Sachs’ comprehensive Global Strategy Paper “Building Long-Term Returns: Our 10-Year Forecasts” [3], published on November 12, 2025, which projects a fundamental shift in global equity performance dynamics over the next decade.

The forecast was released during a period of relative market stability, with major U.S. indices showing modest performance over the past 30 days: S&P 500 (+0.27%), NASDAQ Composite (+0.31%), and Dow Jones (+1.07%) [0]. Current market data shows the S&P 500 trading at elevated forward P/E ratios of approximately 21-23x, supporting Goldman’s valuation concerns [1][2]. The SPDR S&P 500 ETF (SPY) currently trades at $672.85 with a P/E ratio of 28.41, indicating valuations significantly above historical norms [0].

Goldman’s forecast reveals a dramatic divergence in expected returns across regions:

• United States: 6.5%
  - Ranks in the 27th percentile historically since 1900, well below the historical median of 9.3% [1][3]
• Europe: 7.1%
  - Supported by a substantial 3% dividend yield [1][3]
• Japan: 8.2%
  - Benefiting from policy-led improvements and rising dividend culture [1][3]
• Asia ex-Japan: 10.3%
  - Driven by 9% EPS growth combined with 2.7% dividend yield [1][3]
• Emerging Markets: 10.9%
  - Highest projected returns globally, led by China and India [1][3]

The S&P 500’s forward P/E ratio of 21-23x exceeds the global average of ~19x, with current valuations only previously seen during the dot-com bubble and briefly in 2021 [1][2]. Goldman expects a 1% annual valuation decline over the decade [1][3].

Extreme concentration in mega-cap technology stocks creates significant vulnerability. The “superstar” companies (Apple, Microsoft, Alphabet) are driving market performance, but their failure to maintain dominance without new successors emerging poses substantial risk [1].

S&P 500 net profit margins are near record highs at 13.1% [2], with historical margin expansion drivers (globalization, lower rates) unlikely to repeat. Projected 6% annual EPS growth significantly lags the 9% expected in emerging markets [1][3].

Goldman acknowledges AI as a “wild card” that could dramatically alter outcomes, though their forecast doesn’t explicitly model AI productivity gains [1]. Separate Goldman research suggests AI benefits will be “broad-based rather than confined to U.S. technology” [1], creating uncertainty about whether U.S. tech dominance can continue or if global convergence will accelerate.

The forecast assumes U.S. dollar depreciation, which would significantly benefit non-U.S. equities when translated to USD terms [1][3]. However, the timing and magnitude of currency moves remain uncertain, adding another layer of complexity to the projections.

The S&P 500’s heavy weighting to technology (26% profit margins vs. 13% for the rest of the index) creates asymmetric risk profiles [1]. While this provides arithmetic upside if tech dominance continues, it also creates significant downside risk if this trend reverses. Goldman suggests S&P 500 equal-weight indices (RSP) may outperform cap-weighted aggregates, indicating opportunities within the U.S. market despite overall underperformance concerns [2].

Historical analysis shows that following valuations near current levels, 10-year annualized returns have ranged from 0% to 4% [1]. This suggests significant downside risk to Goldman’s already modest 6.5% forecast for U.S. equities.

The report explicitly notes that “extreme current U.S. equity market concentration increases the uncertainty around the long-term forecast” [1]. A failure of the top 7-10 stocks could disproportionately impact overall market returns.

If technology sector profit margins revert to 1970-2015 averages, S&P 500 aggregate margins could decline from 13% to 11%, significantly impacting returns [1].

The report’s emphasis on geographic diversification aligns with traditional portfolio theory, with emerging markets and Asia ex-Japan offering the highest projected returns [1][3].

Consideration of equal-weight indices and other alternative weighting schemes may provide opportunities within the U.S. market despite overall underperformance concerns [2].

Expected dollar depreciation creates opportunities for strategic currency positioning to enhance international returns [1][3].

Goldman Sachs’ forecast represents a significant paradigm shift from the past decade’s U.S. equity dominance. The projection of 6.5% annualized returns for U.S. equities ranks in the 27th percentile historically and reflects concerns about elevated valuations, extreme market concentration, and limited earnings growth potential [1][3].

The forecast suggests emerging markets (10.9%) and Asia ex-Japan (10.3%) will significantly outperform developed markets, driven by stronger earnings growth and attractive dividend yields [1][3]. However, the report acknowledges substantial uncertainty around AI’s impact, currency dynamics, and regulatory environments.

Current market conditions support Goldman’s concerns, with the S&P 500 trading at elevated valuations (forward P/E of 21-23x) and showing extreme concentration in mega-cap technology stocks [1][2][0]. The technology sector’s outperformance (+2.20%) despite these concerns highlights the ongoing dominance of “superstar” companies [0].

The analysis reveals several critical monitoring priorities: technology sector fundamentals, currency and flow dynamics, corporate profitability trends, and global economic divergence patterns [1]. These factors will be crucial in determining whether Goldman’s projections materialize or if unexpected developments (particularly in AI) alter the trajectory.

It’s important to note that Goldman’s scenarios range from 3-10% [1], and historical instances of forecasts underpredicting actual returns suggest maintaining flexibility in strategic allocation decisions. The forecast represents one viewpoint among many, and actual market outcomes may differ significantly from projections.