Goldman Sachs has thrown a curveball into the investment world with its prediction of a paltry 3% annualized return for the S&P 500 over the next 10 years. This forecast has understandably generated a lot of buzz and raised eyebrows, prompting experts to weigh in with their own perspectives. While acknowledging that such low returns are within the realm of possibility, many analysts are quick to point to factors that suggest a brighter future for the market.
Ben Carlson of Ritholtz Wealth Management puts things in perspective, noting that while a 3% return over a decade is rare, it has occurred historically. He highlights that approximately 9% of all rolling 10-year annual returns have been at or below this level. This indicates that while improbable, it’s not entirely out of the question.
However, the chorus of dissent is loud and clear. JPMorgan Asset Management (JPMAM) anticipates significantly higher returns for large-cap U.S. stocks, forecasting an annualized 6.7% over the next 10-15 years. David Kelly of JPMAM expresses confidence in their projections, attributing the expected growth to the resilience and adaptability of American corporations. He emphasizes their ability to navigate challenges and expand profit margins effectively.
This sentiment is echoed by Ed Yardeni of Yardeni Research. He believes that the ongoing productivity boom driven by technological advancements will propel stock prices upwards in the coming years. Yardeni goes as far as to suggest that Goldman Sachs’ optimistic scenario might not be optimistic enough. He predicts that if productivity growth continues its upward trajectory, the S&P 500 could achieve returns comparable to the 6%-7% average witnessed since the early 1990s, potentially exceeding 11% with reinvested dividends.
These optimistic projections are supported by the current state of high profit margins, which are expected to remain elevated due to technological advancements and improved efficiency. Nicholas Colas, co-founder of Datatrek Research, shares this optimism, noting that the S&P 500 is poised for a strong decade, given its current composition of world-class, profitable companies and a pipeline of future stars. While acknowledging that valuations reflect current trends, he believes that the next decade will see returns at least as robust as the long-run average of 10.6%, possibly even exceeding it.
However, the possibility of a ‘lost decade’ with subpar returns cannot be entirely dismissed. Colas reminds us that historically, these low-return periods are often linked to significant economic crises like the Great Depression, the oil shock of the 1970s, and the Global Financial Crisis. He emphasizes that while Goldman Sachs’ research acknowledges these catalysts, it fails to specify what specific crisis their model envisions. This absence of a defined crisis makes it challenging to reconcile their forecast with historical data.
Barry Ritholtz of Ritholtz Wealth Management echoes this concern, stating that predicting an economic disaster over the next decade is not difficult. History is replete with economic calamities. However, he distinguishes this from the Goldman Sachs forecast of 3% annual returns for a full decade, highlighting the significance of this specific prediction.
Ultimately, the future of the stock market is uncertain, and predicting returns with absolute accuracy is impossible. While Goldman Sachs highlights the possibility of a challenging period, others believe that ongoing economic growth and technological advancements will drive strong returns. The truth, as always, lies somewhere in between. While it’s prudent to acknowledge the possibility of a downturn, it’s equally important to recognize the enduring power of the capitalist system and its ability to generate earnings growth, which is ultimately the driving force behind stock prices.
In conclusion, predicting the next decade’s market performance is a formidable challenge. While Goldman Sachs’ forecast has sparked debate, the truth is that nobody has a crystal ball. As we move forward, it’s crucial to remain informed, adapt to changing circumstances, and remember that the long-term trajectory of the stock market has always been upward, driven by the relentless pursuit of growth and innovation.
