Goldman Sachs forecasts S&P 500 returns of just 3% over next decade
US stocks are unlikely to maintain their above-average performance over the next decade as investors plow into other assets, signaling an end to the S&P 500’s king-sized returns, Goldman Sachs Group strategists said Monday.
The benchmark index — which has soared to one record high after another in the past month — will likely post an annualized nominal total return of just 3% over the next 10 years, according to the Goldman team led by David Kostin.
If that forecast comes true, it would be a far cry from the 13% seen in the last decade, and a long-term average of 11%.
There is a 72% chance the S&P 500 Index will trail Treasury bonds and a 33% chance the stocks will lag inflation through 2034, the strategists said.
“Investors should be prepared for equity returns during the next decade that are toward the lower end of their typical performance distribution,” the Goldman team wrote in a note.
US stocks have rallied to record highs after a pandemic-induced financial crisis.
The Federal Reserve further boosted investor sentiment with an outsize half-point interest rate cut in September, along with promises of further cuts.
Goldman’s tepid prediction comes during a particularly bullish market, with the S&P 500 amassing a 27% annual total return the last two years.
On Friday, the S&P 500 closed at an all-time high of 5,864. 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 is worried the index rally has been sustained by just a handful of flourishing 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 analyses show that it is extremely difficult for any firm to maintain high levels of sales growth and profit margins over sustained periods of time.”
Mahoney Asset Management CEO Ken Mahoney said he agrees the benchmark index will be due for a down year, but he does not think it will come so soon.
“No one has a crystal ball,” Mahoney told The Post. “Nvidia CEO Jensen Huang has come out to say demand for their chips is insane and that we are in the earlier innings of an AI revolution, so if there is going to be a slowdown, it is not going to be soon in our eyes.”
New companies in the tech sector have seen exponential growth and big earnings, which is drawing investors, Mahoney said.
“Everyone seems to want to be the next Michael Burry and perfectly predict the next drawdown period instead of getting on board the great bull market we are having,” Mahoney said, referencing “The Big Short” investor who made millions by predicting the 2008 financial crisis.
But Goldman Sachs strategists said even if the rally remained concentrated in Magnificent Seven stocks like Nvidia and Alphabet, the S&P 500 would still post below-average returns of 7%.
JPMorgan shares a similarly bearish outlook.
The bank predicted the S&P 500 annual return for the next decade would be about 6% on high valuation and persistent inflation.
