over 3 years ago • 2 mins
Someone once said the stock market is a voting machine in the short run and a weighing machine in the long. Investment bank Goldman Sachs has just gone one better – jumping into its time machine to make some landmark predictions about the state of US stocks in 2030 💫
This time eight years ago, Goldman conducted a similar exercise – and predicted that the S&P 500 index of US stocks would deliver annualized returns of 8% over the subsequent decade. In the event, an investment in the US market has ended up returning 13.6% for each year since 2010.
Yet the bank remains conservative in its outlook for the next ten years. Combining insights from five separate methodologies, Goldman thinks investors in US stocks can expect average annualized total returns (i.e. including not just share price growth but dividends and buybacks) of 6% – with a 70% chance of returns between 2% and 11%.
That’s less than the 9% average figure for 10-year returns over the past 140 years. But the bank is more than 90% sure that stocks will deliver a better return than US government bonds between now and 2030… 🙏
Crucially, Goldman’s also 87% sure stocks will outpace inflation – the rate at which price rises eat away at the value of your cash.
Still, you shouldn’t abandon portfolio diversification just yet. Significant risks to the bank’s forecast for stocks include the current decline of globalization – the first since 1945 – reducing US companies’ increasingly important overseas profit. The first big hurdle for stocks to overcome, meanwhile, is November’s US elections, which could see US corporate taxes rise from 35-year lows 🗳
Furthermore, the biggest fillip for US stocks since 2012 – accounting for 44% of shareholder returns – was the significant increase in their prices relative to companies’ profits. When the “price-to-earnings” (P/E) ratio has previously been this high, however, the S&P 500’s average annualized return over the ten years following has historically been just 2.7% – and it’s been negative a third of the time...
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