Strategists at Goldman Sachs, led by David Kostin, estimate that the S&P 500 will generate average annual returns of 6% over the next decade. This according to an article in MarketWatch.
The Goldman team arrived at their estimate using five factors:
- Absolute valuations
- Relative valuations
- Equity allocations
- Dividend yield estimates
- Economic modeling
“To make a long story very short,” the article says, “the cyclically adjusted price-to-earnings ratio is a high 26.5, but interest rates are incredibly low. Maybe the more notable insight is that stocks have a 90% chance of beating bonds, since the 10-year Treasury yields a puny 0.63%.”
The Goldman team also outlined the following risks related to its prediction:
- Deglobalization—which puts sales and earnings at risk.
- Taxes—Joe Biden’s proposed plan implies a 12% drop to S&P 500 earnings.
- Labor costs, demographics, and index composition—the S&P 500 has averaged a 35% turnover every decade since 1980.