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Goldman Sachs has forecasted a sharp slowdown in S&P 500 growth over the next decade. After a decade-long annual return average of 13%, the investment bank predicts returns will shrink to just 3% annually through 2034. This forecast marks a significant departure from the S&P 500’s recent performance, which, as The Street reported, reached its 47th record high of 2024 with a year-to-date gain of 22.8%.
- Goldman Sachs forecasts the S&P 500’s annual growth to drop from 13% to 3% over the next decade.
- Market concentration is a key concern, with the top 10 companies making up 36% of the index.
- There’s a 33% chance the S&P 500 could underperform inflation by 2034.
- Goldman expects the equal-weighted S&P 500 to outperform the market-cap index by up to 8% annually.
- Investors may turn to bonds and other assets as equity returns decrease, with a 72% chance of underperforming U.S. Treasury bonds.
Goldman’s outlook is far below the consensus on Wall Street. While other forecasts for the index range between 4.4% and 7.4%, Goldman is particularly concerned about market concentration. The largest 10 companies, including tech giants like Apple, Amazon, and Microsoft, currently account for about 36% of the S&P 500, according to Investopedia. This concentration makes the index vulnerable to the performance of a few companies, which Goldman believes is unsustainable in the long term.
The firm’s analysts also highlight that only a tiny fraction of companies historically maintain such high levels of growth. This overreliance on tech leaders, dubbed “The Magnificent Seven,” has driven the S&P 500’s impressive 2024 performance, but sustaining these gains will be challenging.
Bloomberg noted that Goldman strategists believe this concentrated growth model will likely fail to keep pace with inflation, with a 33% chance of falling behind inflation by 2034. Additionally, they see a 72% chance the S&P 500 could underperform U.S. Treasury bonds. Goldman suggests that in the next decade, the equal-weighted S&P 500, which gives all companies equal importance, may outperform the traditional market-cap-weighted index by as much as 8 percentage points annually.
As The Street reported, investors have been rewarded this year despite ongoing uncertainty in geopolitical and economic factors. However, Bloomberg emphasizes that investors should be prepared for lower returns moving forward, as the market begins to diversify and growth becomes less reliant on a handful of stocks.