Goldman Sachs Group strategists said on Monday that U.S. stocks are unlikely to continue to outperform their averages over the next 10 years as investors put their money into other assets, a move that would put the S&P 500's highest He said this signaled the end of the return.
The benchmark index, which has soared to record highs one after another in the past month, is likely to deliver a nominal total return of just 3% a year over the next 10 years, according to Goldman's team led by David Kostin.
If this prediction comes true, it would be a far cry from the 13% of the past 10 years and the long-term average of 11%.
Strategists say there is a 72% chance that the S&P 500 will lag U.S. Treasuries through 2034, and a 33% chance that stocks will lag inflation.
“Investors should be prepared for stock returns over the next 10 years to be near the lower end of the typical performance distribution,” the Goldman team wrote in a note.
After the pandemic-induced financial crisis, U.S. stocks rose to record highs.
The Federal Reserve further boosted investor sentiment by cutting interest rates by a large 0.5 percentage point in September and promising further rate cuts.
Goldman's lukewarm forecast comes amid a particularly bullish market, with the S&P 500 racking up a 27% annual total return over the past two years.
On Friday, the S&P 500 closed at a record high of 5,864. It was down less than 1% on Monday.
The index has outperformed the rest of the world in eight of the past 10 years. According to data compiled by Bloomberg.
But Goldman Sachs is concerned that the index's rise may be fueled by a handful of strong tech stocks known as the “Magnificent Seven.”
“The intuition for why concentration is important for long-term returns is related not only to valuations but also to growth,” the strategists wrote. “Our historical analysis shows that it is extremely difficult for any company to maintain high levels of sales growth and profit margins over an extended period of time.”
Ken Mahoney, CEO of Mahoney Asset Management, said he agreed that the benchmark index would be down for a year, but he didn't think it would happen that quickly.
“No one has a crystal ball,” Mahoney told the Post. NVIDIA CEO Jensen Huang said demand for his company's chips is insane and we are in the early stages of the AI revolution, so we won't see a slowdown anytime soon. said.
Mahoney said tech startups are experiencing exponential growth and strong profits, attracting investors.
Citing the “Big Short” investors who made huge profits by predicting the financial markets in 2008, Mahoney said, “Everyone has become the second Michael Burry and we're all like we are now. “Instead of riding the big bull market, they want to perfectly predict the next drawdown period.” crisis.
But Goldman Sachs strategists said that even if the gains continued to be concentrated in Magnificent Seven stocks such as Nvidia and Alphabet, the S&P 500 would still return a below-average 7%.
JP Morgan shares a similarly bearish outlook.
The bank predicted that the S&P 500 would return about 6% annually over the next 10 years due to high valuations and persistent inflation.
