Goldman’s New Warning: The S&P 500’s Golden Age May Be Over, But Global Markets Offer a Better Play
For investors who have grown accustomed to the spectacular, decade-long bull run in U.S. equities, Wall Street has delivered a sobering forecast. Financial giant Goldman Sachs recently published a major outlook suggesting the spectacular gains we have seen are unlikely to be repeated, projecting a significantly more modest period ahead for the S&P 500.
The headline number is a forecast of just 6.5% for the average annual total return of the S&P 500 over the next decade. To put that into perspective, the last ten years saw a much stronger performance, meaning investors might need to adjust their expectations for passive, U.S.-centric portfolios. With the S&P 500 recently closing the week near the 6,850 level, this projection suggests a long runway of moderate growth, not the explosive climb many have become used to.
The End of American Outperformance?
So, why the expected slowdown for the dominant U.S. market? The analysis points directly to elevated valuations. American stocks are currently trading at a premium that analysts believe is simply unsustainable for the long term. Furthermore, the powerful financial tailwinds that propelled corporate profits in the previous decade, such as falling interest rates and lower corporate tax rates, have largely run their course.
Goldman Sachs strategists believe these factors will cause the S&P 500’s valuation multiples to compress, acting as a natural drag on total returns. They estimate the 6.5% return will primarily be fueled by earnings growth and dividends, with little help from rising stock price multiples.
Where the Action Is Shifting
The good news for investors looking to “do better” than the S&P 500’s projected 6.5% is that the firm sees far stronger opportunities emerging elsewhere. The core message from the firm is a call for a major shift in global allocation, urging investors to look beyond U.S. borders.
Specifically, international and emerging markets are poised to take the spotlight. Goldman Sachs expects the best returns to come from:
- Emerging Markets (EM): Projected at a massive 10.9% annual return.
- Asia (excluding Japan): Projected at a strong 10.3% annual return.
- Europe: Projected to also outperform the U.S. at an expected 7.1% annual return.
This optimistic outlook for emerging economies is driven by stronger nominal GDP growth and an expectation of robust profit growth, particularly in massive markets like China and India, which are undergoing structural reforms. Essentially, global markets are trading at cheaper valuations and are positioned for a new cycle of faster growth.
A Strategy for the Next Decade
For a decade that is expected to deliver more moderate returns from domestic stocks, the message is clear: diversification is no longer just a defensive strategy, it is a key growth strategy. Investors heavily weighted toward U.S. equities, especially in large-cap tech, might want to re-examine their portfolios and consider increasing their allocation to international and emerging market funds to capture the higher growth projected abroad. As the global economy evolves, the decade ahead looks set to challenge the American exceptionalism narrative in the stock market and favor those willing to look a little farther afield for growth.
