Podcast Summary: Will US Stocks Outperform in 2026?

Podcast: Exchanges
Host: Goldman Sachs (Allison Nathan)
Guest: Sharmin Mossavar-Rahmani, Head of the Investment Strategy Group and CIO of Wealth Management
Date: January 27, 2026

Episode Overview

In this episode of "Exchanges," host Allison Nathan speaks with Sharmin Mossavar-Rahmani about the 2026 market outlook, focusing on the potential for US stock outperformance, global equity trends, the impact of AI, emerging markets, and strategic portfolio allocation. Drawing from Goldman Sachs’ 18th annual outlook, Sharmin shares insights into why the US remains a favored market, examines surprises from 2025 (including China’s market dynamics), and discusses long-term investment themes.

Key Discussion Points and Insights

1. 2025 Equity Recap: US Underperformance & Global Surprises

• [00:00 - 04:22]

• US stocks had a robust year—up 18%—but underperformed non-US developed markets (22%) and China (33%).
• "The surprise was…US 18% high, but non US developed returns were 22% and…China was up at 33%. What's amazing is that is in exactly opposite direction as earnings." (Sharmin, 02:33)
• Despite strong US earnings (12% growth), non-US developed markets and China outpaced US equity performance without corresponding earnings growth.
• Earnings underpin long-term performance. Sharmin affirms a strategic US overweight, citing sustainable earnings as reason for confidence despite non-linear annual performance.
• Emphasis on diversification remains: maintain some allocation to non-US and emerging markets, but core exposure still to US assets.
• "Staying invested in US equities in spite of the volatility during Liberation Day was a good recommendation…returns were surprisingly strong." (Sharmin, 01:50)

2. 2026 Market Outlook: Cautious Optimism for US, Bullish on Select EMs

• [04:22 - 07:25]

• Base case expected returns: non-US developed (6%), US (7%), emerging markets (8%), with the US in the middle.
• US earnings anticipated to be much stronger than non-US developed markets.
• "We expect non U S developed to lag both earnings as well as returns. We expect us to be in the middle and emerging markets to outperform…" (Sharmin, 04:32)

China:

• Core skepticism remains, given the "big question mark" around Chinese growth data.
• Sharmin references significant discrepancies between official statistics (4.8–5% growth) and independent estimates (as low as 1%).
• Long-term projection: US trend GDP growth (helped by AI impact) may edge above China's by 2035.
• "Our view of China growth slowing down prevents us from being so excited about their equity markets…we don't think those numbers and that outperformance is sustainable by any means." (Sharmin, 06:27)

3. Emerging Markets: Tactical Tilts & Currency Dynamics

• [07:25 - 08:36]

• Tactical positive tilts towards certain emerging markets, especially excluding China, with focus on countries like South Africa, India, and Mexico.
• Sharmin expects the major headwind of EM currency depreciation vs. the dollar to abate.
• "We also don't think that incredible currency depreciation of emerging market countries relative to the dollar is going to persist…we think that's no longer going to be a factor." (Sharmin, 08:28)

4. Artificial Intelligence: Separating Hype from Reality

• [08:36 - 12:05]

• AI continues to dominate market narratives, but separating fact from "boosterism" is difficult.
• "In the AI ecosystem we think there is too much excitement and hype." (Sharmin, 09:10)
• Skepticism about productivity claims — especially in areas like childcare — and warnings about private market hype (easy credit, vendor financing, overvaluation).
• In public markets, the impact is more measured; S&P 500’s performance not exclusively driven by AI or the "Magnificent Seven" (Mag7).
• "S and P up 18 excluding max 7 up 15. And so definitely there has been a benefit…[but] people are becoming much more realistic and prices have adjusted." (Sharmin, 11:31)

5. Portfolio Strategy: S&P 500, Mag7, and Passive Investing

• [12:05 - 12:58]

• Recommendation: stick to broad S&P 500 exposure, not overweighting Mag7 or specific AI names.
• The S&P 500's constant revision gives it a natural advantage; beating it is structurally difficult.
• "Just stay invested. Passive equities, it's cheap, it's tax efficient and over time it's been such a difficult benchmark to beat…" (Sharmin, 12:17)

6. Role of Gold and Bitcoin: Not Strategic Portfolio Hedges

• [12:58 - 14:55]

• Sharmin reiterates long-standing skepticism on gold (and Bitcoin) as hedges. Long-term, gold does not provide reliable inflation protection or cash flow—US equities are better in both regards.
• Recent gold rally seen as speculative and driven by momentum from central bank and Chinese buying; not sustainable.
• "If you look at inflation in the long run, gold is actually not a good inflation hedge. It hedges inflation about 50% of the time while US equities…100% of the time." (Sharmin, 13:24)

7. Diversification & Hedging: The Power of Treasuries and Private Assets

• [14:55 - 16:11]

• Strongest "sleep well" hedge for US investors remains US Treasuries, especially in deflationary scenarios.
• Diversification still means substantial US, but also non-US developed, some EM, fixed income (primarily Treasuries), and private assets.
• Realistic return expectations for private assets; incremental returns just slightly above the S&P 500.

8. Valuation Concerns: Myth of Mean Reversion & Long-Term Returns

• [16:11 - 19:17]

• Dispels the myth that elevated valuations must mean revert, lowering long-term returns.
• Only one out of 32 observed cases across geographies and metrics showed statistically significant mean reversion.
• More important are earnings and margin direction, not valuation multiples alone.
• Post-1992, structural shifts (e.g., less GDP volatility, less time in recession) mean investors pay higher multiples.
• US equity market considered "fairly valued" relative to bond yields (citing Damodaran, NYU research).
• "We're not pessimistic on long term returns at all…We're assuming returns more like, let's say 6% for US equities." (Sharmin, 19:05)

Notable Quotes & Memorable Moments

• On 2025’s surprise:
  "US 18% high, but non US developed returns were 22% and…China was up at 33%. What's amazing is that is in exactly opposite direction as earnings." (Sharmin, 02:33)
• On staying invested:
  "Staying invested in US equities in spite of the volatility during Liberation Day was a good recommendation." (Sharmin, 01:50)
• On China’s growth figures:
  "There's a big question mark in terms of what are the real numbers for China's GDP." (Sharmin, 05:29)
• On AI hype:
  "There has been a tilt towards the Mag 7 and the AI themes…[but] the hype and excitement…is a little too high." (Sharmin, 09:10)
• On gold as a hedge:
  "Gold is actually not a good inflation hedge. It hedges inflation about 50% of the time while US equities…100% of the time." (Sharmin, 13:24)

Timestamps for Important Segments

• US & Global Equity 2025 Retrospective: 00:45 – 04:22
• 2026 Market Outlook: 04:22 – 07:25
• China and Emerging Markets: 05:09 – 08:36
• Artificial Intelligence & Bubble Concerns: 08:36 – 12:05
• Portfolio Positioning: S&P 500/Mag7: 12:05 – 12:58
• Gold & Bitcoin in Portfolios: 12:58 – 14:55
• Diversification & Reliable Hedges: 14:55 – 16:11
• Valuations & Long-Term Return Myths: 16:11 – 19:17

Conclusion

Sharmin Mossavar-Rahmani reiterates a confident, US-centric investment thesis grounded in long-term earnings growth and macro stability. While cautious on China and exuberance in AI, she sees moderate optimism for US stocks in 2026 and selective opportunities in emerging markets. Diversification, a strong tilt to the S&P 500, and reliance on US Treasuries as a hedge remain the foundational pillars for robust portfolios. Long-term pessimism is unwarranted; markets are fairly valued, and structural shifts support sustained, if modest, equity returns.