Goldman strategist's 2024 call to look beyond US stocks is still paying off

by Sagarika Jaisinghani

Investors are pricing the US stock market as if there’s no longer any risk of a tariff-driven recession. Peter Oppenheimer isn’t so sure. 

The chief global equity strategist at Goldman Sachs Group Inc. says it’s possible that tariffs bite hard enough to hurt equity prices even as Washington agrees on deals with key trading partners. And while the US might dodge a recession, valuations are high enough that it’s prudent to keep diversifying into other markets.

Oppenheimer made a gutsy, prescient call last year when he warned that US stocks were starting to look too expensive and began advocating for a shift into long-lagging international markets. 

At the time, artificial intelligence was all the rage, the S&P 500 Index was scaling record highs and some strategists were doubling down on their optimism. Interest-rate cuts were coming, and investors were confident that President Donald Trump’s second term would trigger an economic boom.

“When we were first talking about diversification, people were pretty skeptical,” Oppenheimer, 61, said in an interview in London. “We didn’t really think we had got it wrong. And we got a lot of reception when the US did start to underperform in the first quarter of this year.”

Even with the surge in US stocks from the depths of the April selloff, diversifying has paid off. MSCI Inc.’ s all-country index that excludes the US has rallied 17% this year, outpacing an 8.6% advance in the S&P 500.

The strategist — an industry veteran of 40 years who joined Goldman Sachs in 2002 — spoke to Bloomberg News about the outlook for equities into the year end, the evolution of market behavior and forecasting since the 1980s and some of his most memorable calls. The interview has been edited for length and clarity. 

What do you make of the market performance this year, the slump and subsequent return to record highs? Are stocks adequately reflecting tariff risks?

After the market fell 20% roughly this year and there was quite a strong rally, we did think that it would reverse again because at one point we also thought there was going to be a recession. When our economists changed their view about a recession, we argued that this was an event-driven bear market and probably wouldn’t reverse the rebound.

It’s too early to be sure. It could be that we still end up with bigger tariffs and we do have a recession, which the market’s not pricing. It’s increasingly taking the view that you’re going to get interest-rate cuts in the US because inflation is moderating. Also that the tariff deadline doesn’t matter because it’s put in place to force a deal rather than going to be binary to a specific day.

While the market may be right to be much more confident, given that valuations have gone up again and risk premia have come down in equities, there’s a degree of complacency. That’s another reason why we quite like the idea of diversification because the broader spread you have, the better risk-adjusted returns you have in a world where you can still get quite a lot of volatility.

You first warned about US equity valuations being too high in March 2024, and you reiterated that call several times through the year. What drove that view, especially as the AI rally seemed unstoppable?

What struck us was that in the period between 2010 and 2022, there had been this extraordinary, almost unprecedented bifurcation in equities with the US outperforming other markets. That trend was almost unbroken for over a decade. We noticed by mid-2024 that although the US had enjoyed this decade of superior profitability and return on investment, the relative advantages that it was seeing were beginning to fade more than the valuations were reflecting. And to us that was an opportunity to begin to broaden out relative to where most investors had congregated. 

By mid-2024, it had become even more extreme because the invasion of Ukraine had made people even more negative about Europe as energy prices soared, and its exposure to China was starting to be challenged. People saw the US as not only having enjoyed nearly 15 years of supremacy, but this was yet another reason to be even more optimistic. It was at that stage, we began to think there’s an opportunity to spread and diversify. And that argument was based on an opportunity to broaden out geographically, and across styles, factors and sectors. 

What reinforced your conviction in that call even as the US market continued to rally after Trump’s victory in the election? 

One of the things we’ve been very focused on is to build frameworks that are guard rails and rules. If these models are consistently pointing to something, we have to have a good reason why we want to override them. I’m not saying we never do, but they help to maintain our conviction. We are particularly focused on trying to understand structural changes and how cycles evolve. Thinking about a trading environment, very small but fast moves in the market around changes in sentiment, I wouldn’t say we have any edge in that.

You started your career at a broking firm in 1985 after graduating from the London School of Economics. What attracted you to the world of finance and research?

I didn’t have the burning desire to get involved in finance at the time. I was interested in research and that was one way of getting to do research and being paid for it. Lots was changing, there was more investment going into it. And it was very good training ground. Over time, I did get much more interested in finance, which is why I stayed.

How has the psychology of investing changed, the way investors perceive and react to macro catalysts?

There’s far more instruments now that you could trade or use to manage risk. But actually, greed and fear, crowd behavior and psychology, all of these things are somewhat unchanged. There’s a lot of muscle memories. People who were born in the Depression tended to be very thrifty because they had lived through traumatic economic experiences. They always liked things like real estate because it was a protection against inflation. After the financial crisis, people were very negative and it took a long time for confidence to build up. 

And then, of course, you had a whole generation of people who have grown up with zero interest rates after the financial crisis and no inflation at all. They found it extremely difficult to process when inflation started to pick up after Covid. There were large proportions of people that had never experienced an interest-rate rise. Generations are impacted by the seminal events of their age, and that’s a little bit true in financial markets as well.

What are some of your most memorable calls over your 40-year career?

When I was at HSBC, we were were warning that there was a technology bubble before it burst, and I’m pretty proud of that. And after the financial crisis, we wrote a piece in 2012 called The Long Good Buy, which was making the case for why that was an amazing buying opportunity as structurally people had gotten so negative by then. That was quite a bold call at the time. 

And one where you look back and think you should have seen that coming?

My colleague Jan Hatzius had talked about a bubble in the housing market, so he really got that right. I don’t think we levered that to be negative enough on equities as we should have been. Another one is that markets have been a lot stronger since the pandemic than we would’ve probably expected.

What’s your advice for market forecasters in the current environment where sentiment shifts almost weekly?

Having a bit of humility because it’s not possible to get everything right. And also a bit of patience and conviction can really pay off. A lot of young people are programmed to think about things too short-term. It is much more fast paced and everything is much more instant. But the biggest, most consequential impacts are things that are much more structural and can take place over a long time. If you make three or four big calls and you get those right over a long period of time, it can have a much bigger effect than adding up lots of tiny little incremental wins.

Copyright Bloomberg News