TLDR:
- Goldman Sachs forecasts 3% annualized return for S&P 500 over next decade
- This is significantly lower than the 13% return of the past 10 years
- Analysts predict a 72% chance S&P 500 will trail Treasury bonds
- Forecast range is between +7% and -1% return
- Goldman’s prediction is below the 6% consensus expectation
The remarkable run of double-digit gains for the S&P 500 may be coming to an end, according to a new forecast from Goldman Sachs. The investment bank’s strategists predict the benchmark index will deliver an annualized return of just 3% over the next decade, a sharp decline from its recent performance.
David Kostin, Goldman’s chief U.S. equity strategist, and his team project the S&P 500 will post a nominal total return of 3% annually through 2034. This forecast falls significantly short of the index’s 13% annualized return over the past ten years and its long-term average of 11%.
The predicted 3% return would rank in the seventh percentile of 10-year returns since 1930, highlighting the potential for a period of subdued stock market performance. Goldman’s analysts acknowledge the inherent uncertainty in long-term forecasts, providing a range of possible outcomes from a 7% gain to a 1% decline.
This conservative outlook stems from several factors. After years of near-zero interest rates and optimism about economic growth, the investing landscape is shifting. The recent rally has been largely driven by a handful of big technology stocks, and Goldman expects returns to broaden out in the coming years.
The forecast suggests investors may need to adjust their expectations and strategies. Goldman’s team sees a 72% chance that the S&P 500 will underperform Treasury bonds over the next decade, and a 33% likelihood it will fail to keep pace with inflation.
“Investors should be prepared for equity returns during the next decade that are toward the lower end of their typical performance distribution,”
the Goldman strategists wrote in their report.
It’s worth noting that Goldman’s 3% forecast is below the broader consensus expectation of a 6% return. This divergence underscores the challenges in predicting long-term market performance and the range of views among financial experts.
While the S&P 500 has outperformed global markets in eight of the last ten years, Goldman’s analysts believe this trend may not continue. They expect the equal-weighted S&P 500 to outperform the market cap-weighted benchmark in the coming decade, suggesting a potential shift in market dynamics.
For investors accustomed to the strong returns of recent years, this forecast may come as a sobering reminder of the cyclical nature of financial markets. It suggests a need for diversification and potentially a reevaluation of investment strategies to achieve long-term financial goals.
As always, these predictions come with caveats. The report acknowledges the wide range of potential outcomes and the difficulty of forecasting market performance over such an extended period. Investors should consider this outlook as one piece of information among many when making financial decisions.
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