Experts push back on Goldman Sachs’ S&P 500 forecast

Goldman Sachs strategists led by David Kostin estimate that the S&P 500 index will deliver an annualized return of just 3% over the next decade. This is much lower than the 13% returns of the past 10 years and the long-term average of 11%. Some experts are pushing back on this forecast. Ben Carlson of Ritholtz Wealth Management said, “It’s rare to see such low returns over a 10 year stretch but it can happen. Roughly 9% of all rolling 10 year annual returns have been 3% or less… So it’s improbable but possible.” JPMorgan Asset Management projects U.S. large-cap stocks to “return an annualized 6.7% over the next 10-15 years,” according to Bloomberg. David Kelly from JPMorgan stated, “I feel more confident in our numbers than theirs over the next decade. We think that American corporations are extreme — they’ve got sharp elbows and they are very good at growing margins.” Ed Yardeni of Yardeni Research also expressed optimism, noting strong productivity and profit margins.

Pushback on low S&P 500 forecast

“If the productivity growth boom continues, as we expect, the S&P 500’s average annual return should at least match the 6%-7% achieved since the early 1990s. It should be more like 11% including reinvested dividends,” Yardeni said. Nicholas Colas, co-founder of Datatrek Research, pointed out that periods of less than 3% returns, like the Great Depression and Global Financial Crisis, usually had specific catastrophes behind them. Without a clear crisis in sight, Colas argues it’s hard to align the 3% outlook with nearly a century of historical data. Barry Ritholtz of Ritholtz Wealth Management also questioned the forecast, stating, “Forecasting one form of economic disaster or another over the next 10 years is not much of a reach. But asserting 3% returns annually for a decade requires a specific and significant crisis.” Predicting stock market returns over the next decade is challenging. Both optimistic and pessimistic scenarios have valid arguments, but only time will tell the actual outcomes. As Ritholtz put it, “I have no idea what the next decade will bring in terms of S&P 500 returns, but neither does anyone else.”