The strategists estimate a roughly 72% probability that the benchmark index will underperform Treasury bonds over the same period, and they assign a 33% chance that it will fail to keep pace with inflation through 2034.
“Investors should prepare for equity returns in the next decade to be at the lower end of their typical performance distribution,” the Goldman team advised in a note dated October 18.
Since the global financial crisis, U.S. equities have surged, initially fueled by near-zero interest rates and subsequently supported by expectations of robust economic growth. According to Bloomberg data, the S&P 500 is on track to outperform global markets in eight of the last ten years.
However, the 23% rally this year has been largely driven by a small number of large technology stocks. Goldman’s strategists anticipate that future returns will be more evenly distributed, predicting that the equal-weighted S&P 500 will outperform the market capitalization-weighted benchmark over the next decade.
Even if the current rally remains concentrated among a few stocks, the S&P 500 is projected to yield below-average returns of around 7%, the analysts noted.
The latest Bloomberg Markets Live Pulse survey indicates that investors expect the U.S. equity rally to persist into the latter part of 2024. The performance of Corporate America is viewed as more critical to the stock market’s trajectory than the outcomes of the upcoming U.S. presidential election or the Federal Reserve’s monetary policy decisions.
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