In a Global Strategy Paper dated Nov. 12, analysts on Oppenheimer’s team noted current global valuations are high, with the 12-month forward price-to-earnings (P/E) multiple for the MSCI AC World index sitting around 19x. However, the U.S. market has a particularly high starting P/E of approximately 23x. The baseline forecast for the U.S. assumes a 1% annual decline in valuations over the decade, with downside risk seeing a 3% annual drop.

In a cautionary note, the team argued “extreme current U.S. equity market concentration increases the uncertainty around the long-term” forecast. “Extraordinary earnings strength” and elevated valuations among the largest U.S. firms have helped boost the U.S. equity market in recent years, driving earnings growth and multiples, and this may continue, Goldman wrote, meaning the forecast could surprise to the upside, as equity returns have surpassed forecasts during the past decade.

“In contrast, if the profitability and/or valuations of the largest companies falter, unless another cohort of ‘superstars’ emerges, returns for the broad market will likely be hampered as today’s largest stocks fall back to earth,” according to the note.

The word “bubble” only appears once in the report from Oppenheimer, Goldman’s chief equity strategist, and not to refer to the current U.S. stock market. This happens when Goldman notes current valuations only have two historical parallels: during the dot-com bubble and briefly in 2021, with the latter occurring too recently to be useful as a precedent. “While elevated valuations in the late 1990s preceded very poor 10-year returns, there are many differences between the market then and today,” Oppenheimer argues, including lower current interest rates.

Goldman Sachs Research’s Eric Sheridan and Kash Rangan tackled the bubble topic head-on in a recent “Head-On Report” and a recent episode of the Goldman Sachs Exchanges podcast. They said they saw some reasons for concern, but generally agreed the U.S. tech sector isn’t in bubble territory. Tech analyst Sheridan notes most Magnificent 7 tech stocks are showing signs of having real money: generating outsized free cash flows, engaging in stock buybacks, and paying dividends.

“There are signs that rhyme with past periods of time, but I wouldn’t necessarily align it perfectly with some of the lessons we’ve learned in prior periods—at least not yet,” Sheridan said on an episode of Goldman Sachs Exchanges, based on the latest Top of Mind Report. Software analyst Rangan said there are few signs of a bubble in his coverage universe. If anything, many of the valuations here are already underperforming the rest of the market.

Why U.S. stocks could face a decade of headwinds

Oppenheimer’s team at Goldman Sachs projects U.S. equities will deliver an average annual return of just 6.5% over the coming 10 years—ranking at the 27th percentile relative to history since 1900 and well beneath the historical median of 9.3%. The main underlying factors are lofty starting valuations and the extraordinary concentration of market capital in a handful of mega-cap technology stocks, which have pushed current price-to-earnings ratios near records.​

Goldman’s forecast model notes “earnings remain the primary engine of performance,” with estimated annualized earnings per share growth of 6% making up the bulk of investors’ gains. But this is expected to be offset by valuation “drag” at about 1% annually, as market multiples normalize from their current highs. Dividend yields, historically a steady contributor, add another 1.4% to total return.​

Oppenheimer warns elevated valuations in the U.S. “argue for diversification,” contrasting the outsized profit margins and index domination of technology giants like Apple, Microsoft, and Alphabet with much broader opportunities elsewhere. He points out: “Above-average valuations have historically signaled below-average returns, and we expect the same outcome will prove true during the next decade.”​

The rest of the world: a brighter outlook

Outside the U.S., Goldman Sachs paints a markedly more optimistic picture. European stocks are forecast to return 7.1% per year in local currency (7.5% in USD terms as the dollar weakens), driven by a balanced mix of earnings growth and shareholder distributions like dividends and buybacks.​

Japan—long dogged by fears of stagnation—is expected to outperform, with projected annual returns hitting 8.2%, thanks to a combination of earnings growth, policy-led improvements, and a rising dividend culture. Oppenheimer’s report singles out Asia ex-Japan as the strongest regional performer, forecasting a robust 10.3% annual return, powered by 9% earnings growth and a 2.7% dividend yield. Emerging markets, helped especially by surging corporate earnings in China and India, could deliver nearly 11% in local currency, with currency gains likely to add further upside.​

Why the shift? Macroeconomic and structural drivers

Several structural forces underpin this regional divergence. The U.S. faces the dual challenge of historically high valuations and a concentrated market. Elsewhere, earnings growth is expected to benefit from higher nominal GDP growth, demographic tailwinds, corporate governance reforms, and improving shareholder returns through both dividends and buybacks.​

Currency dynamics play a key role: Goldman Sachs’ strategists expect the dollar to decline, which should lift USD-translated returns and favor non-U.S. equities. Historically, periods of dollar weakness have led to outperformance by international stocks—a trend Oppenheimer expects will repeat in the near future.​ Artificial intelligence, another wild card, is expected to provide long-term benefits that are “broad-based rather than confined to U.S. technology,” further supporting the argument for global diversification.​ Oppenheimer’s message is clear: The era of U.S. equity market supremacy may be drawing to a close, at least for the next decade.