a team of us equity analysts at goldman sachs says theyve figured out the secret to us stocks longterm outperformance vs their international peers the answer is pretty straightforward us corporate managers are more adept at squeezing every last cent of return from each dollar of equity investment the metric is known to businessschool types as return on equity roe and its calculated by dividing a companies net income by the value of shareholders equity us firms have consistently outperformed their international peers in japan europe and the rest of asia on this metric according to data published by goldmans david kostin the investment banks chief us equity strategist and his team as of the end of the first quarter trailing return on equity for sp 500 index firms in aggregate equaled 204 placing it in the 97th percentile since 1975 but the absolute level of returns isnt quite as important as the change over the past decade thats where the us market really shines the sp 500 has expanded its roe by 480 basis points in that time compared with a 370 basispoint increase for european stocks included in the stoxx 600  and 310 basis points for japanese stocks included in the topix  managements of us publiclytraded companies increased the returns for their shareholders during the past decade by a far greater amount than their counterparts in europe japan and asia the goldman sachs team said its this elevated rate of expansion that has helped the sp 500 generate annualized total returns of 7 since 2000 compared with 3 for japan and 4 for europe goldman said although the goldman team expects us equity returns to continue to trump their international peers over the long term a surge in valuations this year has complicated the relative nearterm outlook somewhat the team said as us equity prices have ballooned relative to their expected earnings portfolio managers have been forced to grappled with a concept that goldman described as the triumph of hope over experience the team cited the dotcom boom days of the late 1990s as an example the first issue concerns generative artificial intelligence ai and the degree of disruption that the innovation may cause the goldman team said investors have confidence that a select few firms will generate supersized profits while the returns on ai capex initiatives for most other organizations are less clear the dot com experience of the late 1990s is worth remembering because some telecom companies that spent mightily to install miles of dark fiber never generated a return sufficient to cover their cost of capital since ai related stocks have contributed the bulk of this years multiple expansion goldman said they expect the sp 500 to deviate from its historical pattern and underperform over the next 12 months high starting valuation is often viewed as an impediment to strong forward returns and indeed our 12month global equity forecasts suggest the us will lag other regionsbut relentless management focus on boosting roe suggests over time us stocks should outperform global peers the goldman team said us stocks are kicking off august in the red tuesday with the sp 500 down 02 at 4579 while the nasdaq composite is off by 05 at 14269 meanwhile the dow jones industrial average is outperforming having gained 72 points or 02 to 35634 during the first half hour of us trading this content was created by marketwatch which is operated by dow jones  co marketwatch is published independently from dow jones newswires and the wall street journal