Wall Street Reset: Goldman Predicts Decade of Modest Stock Returns

The remarkable bull run that has defined U.S. stock market performance over the past decade may be drawing to a close, according to Goldman Sachs (GS) strategists.

In a stark forecast that could reshape investment strategies, the Wall Street firm predicts the S&P 500 will deliver merely 3% annualized nominal returns over the next ten years – a dramatic decline from its recent 13% performance and long-term average of 11%.

The analysis, led by strategist David Kostin, suggests a significant paradigm shift in investment returns, with a 72% probability that Treasury bonds will outperform stocks through 2034. Perhaps more concerning for investors, there’s a one-in-three chance that stock returns won’t even keep pace with inflation during this period.

This year’s impressive 23% rally in U.S. equities masks an important detail: the gains have been largely concentrated among a select group of major technology companies.

Goldman’s team anticipates a broadening of returns in the coming decade, with the equal-weighted S&P 500 likely to outperform its market cap-weighted counterpart. Even in a scenario where market gains remain concentrated among top performers, the strategists project below-average returns of approximately 7%.

The forecast represents a notable departure from the post-financial crisis era, during which U.S. stocks have dominated global markets. Data from Bloomberg indicates that the S&P 500 is poised to outperform international markets in eight of the past ten years, buoyed initially by near-zero interest rates and later by optimistic economic growth projections.

Despite these cautionary predictions, investor sentiment remains resilient in the short term. The latest Bloomberg Markets Live Pulse survey reveals continued optimism for U.S. equities through late 2024. Notably, corporate earnings have emerged as the primary focus for market participants, superseding concerns about both the upcoming presidential election and Federal Reserve monetary policy decisions.

The Goldman Sachs forecast serves as a wake-up call for investors who have grown accustomed to exceptional returns. With bonds potentially offering more attractive returns and the traditional stock market advantage diminishing, investors may need to recalibrate their expectations and diversify their portfolios accordingly.

This shift could mark the end of an extraordinary era in U.S. stock market history and the beginning of a more modest return environment that more closely aligns with historical norms.

Reference: Bloomberg

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