Goldman Sachs recently released a research report stating that due to the uncertainty of tariff policies, the "American exceptionalism" is fading, while Europe, China, and Emerging Markets are beginning to rise.

Goldman Sachs predicts that the average tariff rate in the USA will rise by 10 percentage points this year, which has led the bank to lower its 2025 GDP growth forecast for the USA from 2.4% to 1.7%, marking the first time in 2.5 years that it falls below the market consensus. The market has also significantly adjusted its expectations for USA economic growth, as evidenced by the S&P 500 Index entering the correction Range last week.

Although Goldman Sachs still expects the US stock market to continue rising, the bank recently reduced its target for the S&P 500 Index at the end of 2025 from 6,500 points to 6,200 points, and lowered its EPS growth forecast for 2025 from 9% to 7%. This adjustment is mainly based on the downward revision of US economic growth expectations, while Goldman Sachs has also moderately lowered valuation expectations due to significant uncertainties in US policy.

In stark contrast, the market's expectations for European economic growth have significantly improved, driving strong performance in European Assets, and Goldman Sachs believes this trend will continue. Specifically, Goldman Sachs expects that the European stock market will continue to outperform the US stock market, as there is still a large valuation gap between US and European markets.

Goldman Sachs recently raised its EPS growth forecast for the 2025-2027 Europe STOXX Index from 3%/4%/4% to 4%/6%/6%, partly due to anticipated increases in European defense spending driving economic growth.

Goldman Sachs believes that Europe has made a good start in increasing defense spending, with positive signals sent from the EU Council and Germany, and the German coalition government has reached an agreement on the recently announced large-scale fiscal plan. Goldman Sachs also expects euro Crediting to continue to outperform dollar Crediting.

In addition to Europe, Goldman Sachs believes that China and the broader Emerging Markets stock markets will also perform well this year, with these markets still having room for further growth.

Goldman Sachs believes that the fading of "American exceptionalism" further highlights the importance of regional diversification in investments, and remains Bullish on European defense, Technology, and Medical Care stocks, China’s A-shares and Listed in Hong Kong stocks, as well as some Emerging Markets stocks.

However, Goldman Sachs warned that if the current pullback in the USA stock market further intensifies, the theme of diversified investments may face challenges, as regional correlations tend to be higher during significant pullbacks in the USA stock market, and regional stock markets rarely achieve positive returns during such periods.

It is worth noting that an increasing number of Institutions are warning that the "American exceptionalism" is fading. Last week, Citi's strategists downgraded the rating of USA Stocks from Shareholding to neutral, while upgrading China's stock rating to Shareholding, explicitly stating that "American exceptionalism" has at least been put on pause.

JPMorgan also stated that the halo of "American exceptionalism" is fading, and Europe may be ushering in new growth opportunities. However, trade wars and policy uncertainty still loom over the Global economy like the sword of Damocles.

Editor/danial