Goldman Sachs projects the S&P 500 will deliver 7% average annual returns over the next 10 years, according to Ben Snyder, the firm's head of US equity strategy. The forecast more than doubles Goldman Sachs' previous 2024 projection of 3% annual returns issued by then-chief US equity strategist David Kostin, who had warned of a potential 'lost decade' for US stocks based on elevated cyclically adjusted price-to-earnings ratios. Snyder attributes the revised outlook to expectations that current high stock valuations can persist due to sustained corporate profit margins near 13% and interest rates remaining below long-term averages despite post-2022 increases.
Goldman Sachs Cites Valuation Sustainability as Basis for Revised Forecast
Ben Snyder stated that investors should not assume valuation multiples will necessarily revert to long-term averages. Business Insider reported Snyder's comments emphasizing that the most important factors determining stock valuations are corporate profit margins and interest rates. Goldman Sachs raised its 10-year outlook from the 3% annual return forecast David Kostin provided in 2024, when Kostin cited high cyclically adjusted price-to-earnings ratios as grounds for warning about a potential 'lost decade' for equities.
Corporate Profit Margins and Interest Rates Support Current Equity Valuations
S&P 500 companies currently maintain net profit margins of approximately 13%, significantly above the roughly 5.5% level recorded in the 1980s, according to Snyder's analysis. Interest rates have risen since 2022 but remain below long-term averages across both short-term and long-term maturities. Snyder stated that arguments for valuation reversion to long-term averages lack persuasiveness given the likelihood that high corporate profit margins and low interest rate environments will persist for the foreseeable future. He noted that even if these conditions continue, further significant improvement in corporate profit margins or larger-scale interest rate declines appear unlikely.
Apollo Global Management Offers Contrasting View on S&P 500 Outlook
Torsten Slok, chief economist at Apollo Global Management, forecasts the S&P 500 may experience essentially sideways movement over the next 10 years. Business Insider reported that some segments of Wall Street continue to warn about the possibility of a 'lost decade' for US stocks. Goldman Sachs' 7% annual return projection falls short of the historical average of approximately 10% but represents Snyder's assessment of achievable performance given current market conditions.
FAQ
What annual return does Goldman Sachs project for the S&P 500 over the next 10 years?
Goldman Sachs projects the S&P 500 will deliver 7% average annual returns over the next 10 years, according to Ben Snyder, the firm's head of US equity strategy. This forecast more than doubles the 3% annual return projection Goldman Sachs issued in 2024 through then-chief US equity strategist David Kostin.
Why does Goldman Sachs expect stock valuations to remain elevated?
Ben Snyder attributes the expectation to sustained corporate profit margins near 13%—significantly above the 5.5% level in the 1980s—and interest rates that remain below long-term averages despite increases since 2022. Snyder stated that high corporate profit margins and low interest rate environments will likely persist, making arguments for valuation reversion to long-term averages less persuasive.
