Decade of rapid growth of the S&P 500 has ended - Goldman Sachs.

Vyacheslav Dvornikov

Oct 22, 2024

Goldman Sachs strategists' forecasts indicate that over the next 10 years, investors may face a significant decline in the returns of the S&P 500 index. This calls into question the benefits of passive investing.

In the next 10 years, the average annual nominal return of the S&P 500 will be only 3% (real — 1%), predict Goldman Sachs strategists. For comparison: over the past 10 years, the average nominal figure was 13%, and the long-term average was 11%.

The bank also believes that the probability that U.S. stocks will lag behind Treasury bonds by 2034 is about 72%, and behind inflation — 33%. According to strategists' forecasts, the equal-weighted S&P 500 will outperform the regular capitalization-weighted index in the next 10 years because big techs will stop driving the market.

This aligns with other recent long-term forecasts that promise low or even negative returns on U.S. stocks in the coming years — primarily due to high current valuations. For example, the investment company GMO's model predicts, that in the next 7 years, the average annual return of large-cap U.S. companies will be minus 5.7%, and small-cap — minus 4.3%. Vanguard forecasts, that the average annual return of the U.S. stock market in the next 10 years will be in the range of 3.2–5.2%. 

Why this matters

If the forecast turns out to be correct, then passive investing (with the help of index ETFs?) in the next few years will be much less profitable compared to the period when markets became increasingly concentrated, and indices were pushed up by a limited number of the largest companies, primarily big techs.