Goldman Sachs Group strategists said on Monday that U.S. stocks are unlikely to maintain their above-average performance over the next decade as investors shift to other assets, signaling the end of the S&P 500’s king-sized returns.
According to the Goldman team led by David Kostin, the benchmark index – which has hit back-to-back record highs in the past month – will post annual nominal total returns of just 3% over the next 10 years.
If this forecast comes true, it would be a far cry from the long-term averages of 13% and 11% seen over the past decade.
Strategists said there is a 72% chance that the S&P 500 index will outpace Treasury bonds and a 33% chance that stocks will outpace inflation through 2034.
“Investors should be prepared for equity returns over the next decade that are toward the lower end of their typical performance distribution,” the Goldman team wrote in a note.
US stocks have reached record highs following the pandemic-induced financial crisis.
Federal Reserve further boosted investor sentiment Interest rate cut by half a point in SeptemberAlso a promise of further reduction.
Goldman’s bullish forecast comes during a particularly bullish market, in which the S&P 500 has generated a 27% annual total return over the past two years.
The S&P 500 closed at an all-time high of 5,864 on Friday. It was down less than 1% on Monday.
The index is on track to outperform the rest of the world in eight of the last 10 years. According to data compiled by Bloomberg,
But Goldman Sachs worries that the index rally has been sustained by only a handful of prosperous tech stocks, known as the “Magnificent Seven.”
“The intuition for why concentration matters for long-term returns relates to growth in addition to valuation,” the strategists wrote. “Our historical analyzes show that it is extremely difficult for any company to maintain high levels of sales growth and profit margins over a sustained period of time.”
Ken Mahoney, CEO of Mahoney Asset Management, said he agrees that the benchmark index will be down for a year, but he does not think it will come so quickly.
“No one has a crystal ball,” Mahoney told The Post. “Nvidia CEO Jensen Huang has said that demand for their chips is wild and we are in the early innings of the AI revolution, so if there is going to be a slowdown, it is not going to be on our radar any time soon. ,
Mahoney said new companies in the tech sector have seen rapid growth and big earnings, which is attracting investors.
“It seems like everyone wants to be the next Michael Burry and perfectly predict the next down period instead of joining in on our current spectacular bull market,” Mahoney said in reference to the situation. “The Big Short” investor Who made millions by predicting the 2008 financial crisis.
But Goldman Sachs strategists said that even if the rally remained concentrated in the Super Seven stocks like Nvidia and Alphabet, the S&P 500 would still post a below-average return of 7%.
JPMorgan shares an equally bearish outlook.
The bank predicts that the S&P 500 will have annual returns of around 6% for the next decade at high valuations and persistent inflation.
