Executive Summary
Goldman Sachs' Chief Investment Officer Sharmin Mossavar-Rahmani presents a contrarian view on equity valuation theory that challenges widespread investor assumptions. Her team's analysis of 32 valuation observations across eight metrics and four regions reveals only one instance of statistically significant mean reversion, directly contradicting the market's belief that high valuations predict lower future returns. This finding undermines the bearish positioning many investors have adopted based on current S&P 500 multiples. Goldman maintains US equity overweight despite 2025's surprising underperformance (US +18% vs non-US developed +22%, China +33%), attributing international outperformance to unsustainable factors disconnected from earnings fundamentals. The firm's 2026 outlook favors emerging markets ex-China (+8% expected returns) over US (+7%) and non-US developed (+6%), representing a tactical shift while preserving strategic US bias. Most significantly, Goldman argues that structural GDP volatility reduction since 1992 justifies permanently higher equity multiples, as recession frequency dropped from 19% to 8% of time periods. This structural change, combined with persistent margin expansion and AI productivity gains adding 0.4% to US trend growth, supports their 6% long-term US equity return assumption rather than the sub-4% returns many strategists project based on traditional valuation metrics.
Key Insights
what Sharmin Mossavar-Rahmani said“When we look at valuations across eight different metrics, across four different sectors... You have 32 observations. Only one of them has shown statistically significant mean reversion.”
This is a preview. Log in to see the full analysis including investment opportunities, risks, catalysts, and detailed insights.