Equity analysts at Goldman Sachs woke up on the wrong side of the bed to start the week…
This morning, the global investment bank released a new report forecasting only a 3% annualized return for the S&P 500 in the next decade.
The S&P 500 has produced returns of 13% annually over the last decade. That’s above the 11% annual average going back a century. So if Goldman Sachs’ prediction is correct, a 3% gain would be one of the worst 10-year periods for the stock market – putting it in the bottom 7th percentile.
Meanwhile, JPMorgan Chase’s research team published its own 10-year prediction for the S&P 500 last month, predicting annual returns of 6%.
I was hesitant to even share these two views because nobody can confidently predict the future. It’s even more difficult predicting the stock market’s performance.
But it’s important to understand that even the biggest and most powerful Wall Street firms are just humans. They’re capable of making wild predictions, too.It’s also important to note that when Wall Street hands out gloomy market outlooks like these, it’s likely that stocks aren’t near a high. Like investors, Wall Street succumbs to emotions and is often guilty of being overly optimistic near a market high.
One of the reasons Goldman is so bearish today is because some of the largest stocks are leading the rally. This concentration was also true last year, but recently, the “Magnificent Seven” tech stocks haven’t been as strong as the rest of the stock market.
This shift is actually a good sign for stocks…
The remaining 493 stocks in the S&P 500 are starting to outperform. And the more broad-based the rally is, the more sustainable it is over the long-term.
Take a look at the chart below, which shows the performance of the Magnificent Seven stocks in the last three months. Only two have been able to beat the S&P 500 and Equal Weight S&P 500 Index. The Equal Weight S&P 500 is also outperforming the traditional index.
This indicates that the market rally is more widespread than Wall Street believes – and that higher prices will likely be led by smaller companies in the future.
It’s helpful to have research you can trust and a strong investment strategy during times like these. But it’s especially crucial to uphold a long-term view rather than get bogged down by short-term noise.
This will allow you to look beyond the biggest names in the stock market to find the winners of the future.
Here’s to the future,
Matt McCallEditor, Market Insights
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