The long dominance of United States stocks and the dollar may be nearing a turning point, according to the latest analysis from Goldman Sachs’ global strategy team, which argues the case for greater diversification is becoming harder to ignore.
“The era of diversification has begun. We think it has further to run,” the analysts said in a note published this week.
They pointed to a shift in fundamentals: while US markets have outperformed for over a decade, that success has led to heavy concentration in a narrow group of stocks and regions.
As a result, investors are increasingly exposed to risks from a single currency, sector and geography.
Since the start of the year, signs of stronger growth in China and looser fiscal policy in Germany have started to draw capital into cheaper markets outside the United States.
Meanwhile, rising US deficits and policy uncertainty have weakened the dollar, increasing the appeal of foreign assets for dollar-based investors.
Valuations in US equities have stayed high, especially in the technology sector, but Goldman analysts argue this premium is no longer justified by relative earnings growth.
“The outperformance of the US market and the rise in price-to-book had already started to exceed the relative underlying earnings and return on equity growth in around 2022,” the note said.
The report highlights that a broader range of investment opportunities is now emerging, including mid- and small-cap stocks in Europe and a more eclectic mix of growth and value strategies.
It adds that even within sectors, the US now commands a higher valuation premium over European and Asian counterparts than the long-run average.
In a world where returns are no longer concentrated in just a handful of large-cap US tech stocks, the motivation for geographic and style diversification is growing, the strategists concluded.