Goldman Sachs Warned again about Elevated Equity Valuations

Quick overview

The S&P 500 is trading at 22 times forward earnings—about a 36% premium to global peers—according to the investment bank.

Goldman Sachs cautioned that elevated equity valuations leave stocks vulnerable if concerns about economic growth intensify, particularly later in the year, according to a note from the firm’s strategists.

Executives led by Christian Mueller-Glissmann said U.S. equities are trading at very high valuation levels, meaning prices already reflect optimistic expectations for both the economic outlook and corporate earnings.

Goldman Sachs assesses S&P 500 valuations

The S&P 500 reached several record highs last year, rising roughly 16%. Even so, it lagged other global markets, such as the MSCI World ex-U.S. index, which gained close to 29%.

Goldman Sachs noted that the S&P 500 is trading at 22 times expected earnings, representing a 36% premium relative to its global peers.

These valuation levels have raised concerns among strategists, who warn that if the U.S. economy slows or recession fears resurface, equity prices could face meaningful downside. “The macro backdrop could become less supportive in the second half of the year,” the analysts wrote, adding that an increase in recession risk could raise the likelihood of a deeper bear market given current valuations.

That said, in the near term, the report highlighted that markets have extended their rally so far this year, while global equities—particularly in Europe and emerging markets—have continued to outperform U.S. stocks.

A cautious stance

Goldman Sachs maintained an overweight position in equities for now, betting that stronger growth will remain the primary driver of risk appetite in the first half of the year.

However, strategists emphasized that elevated valuations are likely to translate into lower risk-adjusted returns, and that equity performance will need to broaden beyond capital spending tied to artificial intelligence (AI).

In other words, leadership should not be limited to companies directly benefiting from AI adoption, but also include firms positioned to gain from a more broadly based economic expansion.

Against this backdrop, Goldman Sachs recommended increasing diversification across regions, sectors, and investment styles to enhance risk-adjusted returns, rather than concentrating exposure in the large technology stocks that currently dominate the market.

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Ignacio Teson

Economist and Financial Analyst

Ignacio Teson is an Economist and Financial Analyst. He has more than 7 years of experience in emerging markets. He worked as an analyst and market operator at brokerage firms in Argentina and Spain.

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