Goldman Sees S&P Gaining Just 6.5% Annually for Decade Ahead-Here's How to Do Better

"And while there are more bullish analysts out there who expect more from the broad financial markets over the next decade, I do think that elevated valuations could remain the number-one drag on prospective returns moving forward. Undoubtedly, Goldman Sachs analysts have noted that valuations are coming in at the high end historically. When you look at the performance of the broad market minus the Magnificent Seven, you'll see just how much AI and the tech titans have contributed to the past year of gains."

"At some point (perhaps that point is now), the Mag Seven are going to need to take a breather as investors question the premium valuations they'll need to pay for AI exposure that might not pay off in the next year or even the year after that. Though the more distant future (think 2030 and beyond) is tough to gauge, I do think that today's AI expenditures will experience a gradual payoff, whether that's in three years or in a decade's time."

Goldman Sachs projects 6.5% annualized returns for the stock market through 2035. Valuations are near the high end historically and could be the primary drag on future returns. Much of the recent market rally was driven by AI-focused mega-cap technology stocks; excluding the Magnificent Seven reveals far weaker broad-market performance. The Magnificent Seven may need to pause as investors reassess premiums for AI exposure that may not pay off in the near term. AI expenditures are expected to deliver gradual payoffs over several years to a decade. Investors can consider international stocks with lower valuations to improve prospective returns.

Read at 24/7 Wall St.