The S&P 500 (SNPINDEX: ^GSPC) is on track for a banner year in 2024.
The broad-market index had its best start since 1997 through the first nine months of the year.
However, according to Wall Street, none of that was supposed to happen. At the beginning of the year, the Wall Street consensus called for the S&P 500 to be just flat as analysts saw a wide range of risks, including rising high valuations, doubts about the Federal Reserve achieving a soft landing, and geopolitical issues.
While that proved to be dead wrong, now one of the most respected investment banks in the country is predicting a lost decade for stocks.
In a recent report, Goldman Sachs predicted that the index would achieve an annualized total return of 3% over the next 10 years.
Over a decade, that equals a return of just 34%, which would rank in the 7th percentile of 10-year returns since 1930. By contrast, the S&P 500 has jumped 38% over just the last year.
Among the risks that Goldman's equity research teams see is a high concentration in just a few stocks, essentially the "Magnificent Seven," and a high starting valuation. According to the Wall Street Journal, the S&P 500 now trades at a price-to-earnings ratio of 25.1, and based on the CAPE, a price-to-earnings ratio that takes into account the last 10 year's worth of earnings, the stock market is even more expensive. According to Goldman, it trades at a CAPE ratio of 38, in the 97th percentile historically.
Concentration is a risk because it's hard for market leaders to maintain the kind of growth that has driven "Magnificent Seven" stocks like Nvidia to record levels. For the bull market to continue, prognosticators believe those gains need to spread to smaller stocks.
Other investment firms also see weak performance over the next decade. JPMorgan Chase sees the annual return S&P 500 return over the next decade at 6%.
Though Goldman didn't specifically say it, the forecast likely assumes at least one bear market over the next 10 years. Without a significant pullback in stocks, it seems highly unlikely that the S&P 500 would only increase 34% over a decade.
Investors have endured that kind of malaise before, and more recently than you might think. From 2000 to 2009, the S&P 500 fell 24% as investors were faced with the twin setbacks of the dot-com bubble bursting and the great financial crisis.
Of course, what happened over the next decade more than made up for it in the next decade as the index jumped 189% from 2010 to 2019.