Keep on truckin’: Will the US continue to outperform other markets?

Episode Summary

Executive Summary: Goldman Sachs Wealth Management CIO Sharmeen Mosavar-Ramani argues that despite stretched U.S. valuations after two years of strong gains, investors should stay invested in U.S. equities for 2025 because earnings and growth remain supportive. She sees U.S. preeminence intact, expects rates to drift lower, favors fixed income as the best hedge, and remains skeptical on China, gold, and Bitcoin as strategic investments.

Main Topics: U.S. preeminence and equity outlook (Priority: 5/5): The central thesis is that the U.S. continues to outperform other markets structurally, and this theme still supports overweighting U.S. assets. Valuations and return expectations (Priority: 5/5): Although U.S. equities are expensive, she argues valuation alone is a poor predictor of next-year returns and sets a base case of 8% U.S. equity returns for 2025. Interest rates, inflation, and tariffs (Priority: 4/5): She expects rates to move lower as inflation gradually eases, while tariffs may add volatility but not enough to overturn the base case. Strategic asset allocation shift (Priority: 4/5): Goldman Sachs modestly reduced non-U.S. equities and increased private assets, especially buyout and growth equity, reflecting a long-term strategic view. China and non-U.S. markets (Priority: 5/5): Non-U.S. markets may look cheap superficially, but sector composition and China exposure weaken the case for a broad reallocation away from the U.S.; China is viewed as a trading, not investing, market. Gold and Bitcoin as tactical, not strategic, assets (Priority: 4/5): Gold is driven more by central-bank and Chinese buying than inflation hedging, while Bitcoin remains speculative because it lacks cash flows and valuation anchors. Portfolio hedging approach (Priority: 4/5): The best protection against volatility is strategic asset allocation with high-quality fixed income, not expensive derivative hedges or wholesale equity exits.

Key Arguments: U.S. valuation is elevated, but valuation metrics and S&P 500 concentration are not reliable predictors of next-year returns in this environment. A stronger-than-trend U.S. economy, with GDP around 2.3%, should support earnings and make valuations manageable. The base-case return for U.S. equities in 2025 is 8%, with reasonable upside beyond that, so investors should stay invested. Interest rates are more likely to fall than rise; tariffs may create volatility, but the base case is gradual disinflation, not a sustained inflation spike. Most U.S. corporate debt is fixed-rate, so higher rates would have limited near-term damage to companies. Non-U.S. markets are not as cheap as they appear because sector mix matters; the U.K. looks cheaper partly due to less technology and more energy exposure. China is viewed as structurally challenged and likely to follow a Japan-like long slowdown, making it a trading market rather than a long-term investment opportunity. Gold is not a good inflation hedge; its recent strength is attributed mainly to central-bank and Chinese buying. Bitcoin is still not considered an investment asset class because it does not generate cash flows, earnings, or diversification benefits. The best hedge is a durable strategic allocation with adequate high-quality fixed income rather than frequent tactical hedging or selling equities. Goldman Sachs shifted a small amount away from non-U.S. equities into private buyout and growth equity, which it expects to outperform non-U.S. public markets over 10 years.

Data Points: U.S. equity base-case return for 2025: 8% - Goldman Sachs Wealth Management's base case for U.S. equities next year 2024 U.S. equity return: over 20% for the second consecutive year - Referenced as the backdrop for stretched valuations Expected U.S. GDP growth: around 2.3% - Used to support the argument that earnings should remain strong Non-U.S. developed and emerging market return range: about 7% to 9% - General return expectations discussed for major markets outside the U.S. U.S. overweight in strategic asset allocation: 7% - Current overweight versus the global benchmark U.S. overweight in 2009: about 23% - Historical comparison showing the overweight has narrowed as U.S. weights rose S&P 500 technology-sector earnings share: 30% - Used to explain why U.S. valuation comparisons need sector adjustment U.K. technology-sector earnings share: 1% - Illustrates why the U.K. can look cheaper on a simple multiple basis U.K. energy-sector weight: double digits - Used to show how sector composition distorts valuation comparisons S&P 500 energy-sector weight: mid-single digits - Contrasted with the U.K. to explain relative valuation differences Valuation positioning: 9th or 10th decile - Describes how expensive U.S. equities are relative to historical valuation metrics

Pivotal Quotes: "U.S. preeminence is intact." — Sharmeen Mosavar-Ramani: Explaining the report title and the continuing strategic case for U.S. assets "valuations alone and the level of concentration in the S&P 500 index, for example alone, are actually not good indicators of the next year's returns." — Sharmeen Mosavar-Ramani: Addressing whether expensive U.S. markets are fully priced in "the best way to prepare for this volatility is to make sure you have the right strategic asset allocation that would have enough fixed income in it." — Sharmeen Mosavar-Ramani: Summarizing her recommendation for managing downside risk

Implications: Listeners should expect a still-U.S.-led market in 2025, but with lower expected returns than 2024 and more volatility. The message is to stay invested, diversify thoughtfully, prefer quality fixed income as ballast, and treat gold, Bitcoin, and China more as tactical trades than core allocations.