MW Global markets are entering a new 'postmodern' era. This is how investors can win big, says Goldman Sachs

By Joseph Adinolfi

Broadly diversified portfolios could struggle to generate the same returns going forward, and skillful stock pickers should come out on top

Global markets are entering a new "postmodern" era, according to Goldman Sachs.

A new era is dawning in markets, according to Peter Oppenheimer, the head of global equity strategy at Goldman Sachs.

Equity-market investors who can move quickly enough to identify winners and losers could win big. Those who stick with strategies that worked in the past, like simply buying and holding index funds, might be disappointed.

A few years ago, Oppenheimer and his team christened this new environment the "postmodern cycle." On Wednesday, they shared an update on their original thesis that delved deeper into how macroeconomic changes in the global economy could bleed through to the stock market - creating a new set of circumstances that investors will need to navigate.

The previous paradigm, which dated back to the early 1980s, was characterized by slowing inflation, falling interest rates and increasing globalization. That broadly lifted stocks over the span of four decades, although investors experienced a few bumps along the way.

A wave of supply-side economic reforms, including the tax cuts and deregulation that arrived during the 1980s under President Ronald Reagan, also helped to boost corporate profits and stock-market returns.

But President Trump's tariff plans and the supply-chain disruptions caused by the COVID-19 pandemic have changed all of that, according to Oppenheimer. Now, the globalization that had unfurled slowly over decades is slamming into reverse.

In the years ahead, heavy government debt burdens will likely keep bond yields elevated relative to where they stood during the years that followed the 2008 financial crisis. Prices of consumer goods and services should continue to climb more quickly than they did in the past. And aging populations could also complicate the relationship between corporate profits and economic growth.

In the past, the strongest returns for stocks typically followed periods where valuations were relatively low.

But these days, valuations based on most popular metrics are looking stretched. European and Asian markets might look cheap relative to the U.S., but that is a harder case to make when comparing them to where things stood in the past.

When measured as a percentage of total GDP, corporate profit margins are also looking stretched.

For these reasons, Oppenheimer and his team believe returns for broad market indexes like the S&P 500 SPX might prove disappointing going forward.

"On balance, while we see high valuations as justifiable, there is less scope for multiple expansion to contribute much to returns. We expect less meaningful annualized returns at broad index levels than we have seen in the 1945-1968, 1982-2000 and 2009-2022 supercycles," Oppenheimer wrote in a report shared with MarketWatch.

That could create problems for investors who have favored broadly diversified portfolios that track indexes like the S&P 500. At the same time, skilled stock pickers could benefit from a wealth of opportunities to outperform.

Over the past few decades, returns in the global equities market have largely been dominated by U.S. information-technology stocks, as well as companies such as Amazon.com Inc. (AMZN) and Meta Platforms Inc. (META) that are often lumped in with Big Tech.

But as the AI revolution begins to bear fruit, this could change, Oppenheimer said. Companies are starting to leverage this new technology to boost productivity. Soon, the gap between stock-market winners and losers could become more obvious across sectors, styles and geographies.

Over the past few years, the success of the latest crop of U.S. stock-market leaders like Nvidia Corp. (NVDA) and Microsoft Corp. $(MSFT)$ has caused global equities markets to become increasingly concentrated.

While Oppenheimer believes plenty of opportunity remains within the technology space, he cautioned that investors should consider diversifying away from some of the recent stock-market leaders.

Investors should also think about expanding their security-selection search beyond the U.S., he noted. Europe could hold some particularly enticing opportunities as companies spend more money on long-lived assets to boost productivity and innovation.

U.S. stocks have held up so far in 2025, as markets quickly bounced back from the turbulence unleashed in early April by President Trump's initial "liberation day" tariff onslaught. But many international markets have bested the U.S. this year to date, especially when their returns are translated into U.S. dollar terms.

See: S&P 500 scores new peak. Are U.S. stocks 'catching up' to the rest of the world?

As of Wednesday late afternoon, the S&P 500 was clinging to a 0.2% gain, while the Nasdaq Composite COMP was up by 0.7%. Both indexes received a boost after a major antitrust ruling helped bolster shares of Alphabet Inc. $(GOOGL)$ $(GOOG)$ and Apple Inc. $(AAPL)$ Meanwhile, the blue-chip Dow Jones Industrial Average DJIA remained stuck in the red, off by nearly 200 points, or 0.4%, in recent trade.

-Joseph Adinolfi

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September 03, 2025 15:36 ET (19:36 GMT)

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