Wall Street's Profitability Edge Holds Despite De-Rating, Goldman Sachs Says

Wall Street continues to top the charts on profitability even as its dominance over global equity markets fades, according to Goldman Sachs' latest Global Strategy Views report, published 3 August 2026.

The US market's 12-month forward return on equity stands at 23.4%, the highest among major regions, comfortably ahead of the UK, Europe, Japan and China, the note said. Even after excluding the largest technology companies, the US market's ROE remains well ahead of most other regions.

China was flagged as the only major market with an ROE below its historical average, despite what Goldman Sachs described as a boom in the country's exports and its position as a key competitor to the US in technology.

Geographic Leadership Shifts

The report noted that global equity returns have broadened out considerably since 2025, marking a break from the post-financial-crisis pattern in which the US market, technology stocks and growth names consistently outperformed. The US has been the weakest of the major regions this year in price performance terms, even as earnings growth remains the primary driver of returns across markets, Goldman Sachs said.

Japan, Asia Pacific and emerging markets delivered the strongest local-currency returns over the past year, the note said, with Asia, emerging markets and the US all seeing valuation de-ratings while Japan and Europe posted modest valuation gains.

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Big Tech Premium Narrows

A key theme in the report is the erosion of the valuation premium once commanded by the largest US technology companies. The five biggest stocks in the US market now trade at a price-to-earnings multiple only marginally above the remaining 495 constituents of the index, Goldman Sachs said, a sharp reversal from the consistent premium those stocks held since 2017.

The bank linked this shift to a surge in capital expenditure among hyperscalers, driven by the build-out of artificial intelligence infrastructure, which it said has eroded free cash flow yields for US technology firms relative to more value-oriented markets such as Europe.

Software valuations have also de-rated sharply, with the sector's global price-to-earnings premium falling to around 20%, down from levels near 200% at the start of the century, the note said. Leadership within the technology sector has shifted from software towards hardware, chip and memory stocks, which have seen a surge in demand tied to computing needs.

Old Economy Sectors Gain Favour

Goldman Sachs said the capital expenditure build-out, combined with rising government borrowing for energy security, infrastructure and defence, has triggered a broader capex "super cycle" that is benefiting previously neglected sectors. Industrials now command the highest sector valuation globally, the bank said, surpassing technology, which has de-rated to roughly in line with its 20-year average valuation.

Broader Market Participation

The note also pointed to falling stock correlation across major markets and a narrowing gap between the performance of the largest stocks and the broader index. The equally weighted S&P 500 has outperformed its capitalisation-weighted counterpart by more than 7.3%, the widest gap since 2009, which Goldman Sachs attributed to broader economic resilience, a pick-up in M&A activity, and the unwinding of crowded momentum trades.

The bank described the current environment as a "healthy normalisation" following years of unusually high concentration in both market capitalisation and index performance.

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