A team of U.S. equity analysts at Goldman Sachs’ says they’ve figured out the secret to U.S. stocks’ long-term outperformance vs. their international peers.
The answer is pretty straightforward: U.S. corporate managers are more adept at squeezing every last cent of return from each dollar of equity investment. The metric is known to business-school types as “return on equity” and it’s calculated by dividing a companies’ net income by the value of shareholders’ equity.
“Managements of U.S. publicly-traded companies increased the returns for their shareholders during the past decade by a far greater amount than their counterparts in Europe, Japan, and Asia,” the Goldman Sachs team said. As U.S. equity prices have ballooned relative to their expected earnings, portfolio managers have been forced to grappled with a concept that Goldman described as “the triumph of hope over experience.”“The first issue concerns generative Artificial Intelligence and the degree of disruption that the innovation may cause,” the Goldman team said.
Since AI related stocks have contributed the bulk of this year’s multiple expansion, Goldman said they expect the S&P 500 to deviate from its historical pattern and underperform over the next 12 months.
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