Wall Street's two major banks, Goldman Sachs and JPMorgan, have contrasting views on the future of the U.S. stock market. Goldman Sachs strategists anticipate a modest annual growth rate of just 3% in the coming years, attributing this to the elevated starting point of the current market and rising U.S. Treasury yields. They suggest that this could lead to a flow of capital towards bonds and other assets.
In contrast, analysts from JPMorgan Asset and Wealth Management are more optimistic, projecting an annualized return of 6.7% for large-cap U.S. stocks over the next 10-15 years. Despite acknowledging potential declines in price-to-earnings ratios, they believe that strong fundamentals will compensate for this.
Goldman Sachs warns that the annual growth rate for the S&P 500 index could only be 3% in the next few years, significantly lower than the 13% of the past decade and the long-term average of 11%. Their outlook considers the possibility of high Treasury yields attracting investments away from the stock market.
On the other hand, JPMorgan analysts maintain that U.S. large-cap stocks will remain a core component of investors' portfolios, expecting a 6.7% annualized return in the upcoming decade. Global head of JPMorgan Wealth Management, Monica Issar, notes that improved macroeconomic and corporate fundamentals offer a solid investment opportunity despite potential valuation drops.
While JPMorgan's forecast is below the S&P 500's long-term average annual growth rate of 11%, they remain optimistic about the U.S. market's outlook, predicting robust post-inflation returns. Conversely, Goldman Sachs suggests that there is a 72% likelihood that stock returns will lag behind bonds by 2034, with a one-third chance of underperforming inflation.
The broader uncertainty on Wall Street persists, despite the Federal Reserve's recent pivot to a more relaxed monetary policy. This uncertainty partly stems from the market's significant rise over the past two years due to economic resilience, strong corporate profits, and speculation around AI advancements. The S&P 500 index has risen 22% this year and more than 60% since its October 2022 low, sparking varied predictions about future trends.
JPMorgan's optimism is partly influenced by the expected revenue growth and profit margin improvements from companies heavily investing in AI. David Kelly, Chief Global Strategist at JPMorgan Asset Management, expresses greater confidence in future performance than Goldman Sachs, despite potentially higher valuations.
Since the global financial crisis, the U.S. stock market has rebounded with near-zero interest rates and bets on strong economic growth. Over the past decade, the S&P 500 outperformed other world regions in eight years.
This year's recovery mainly concentrated on a few large tech stocks. However, Goldman Sachs predicts that returns will broaden, with the equal-weighted S&P 500 index outperforming the market cap-weighted benchmark over the next decade. They expect returns to remain below average at approximately 7% even if gains remain concentrated.
Recent surveys indicate that investors expect the U.S. stock market's upward momentum to continue into the latter part of 2024. The strength of U.S. corporate performance is seen as a more significant influence on market performance than the outcome of the U.S. presidential election or the Federal Reserve's policy trajectory.
