Strategists from the two largest investment banks on Wall Street have come to vastly different conclusions regarding the future trend of the US stock market in the coming years.
As the S&P 500 index hovers near historical highs, Goldman Sachs recently warned that the era of the index's decade long surge is over, and the annualized nominal total return over the next decade will only be slightly above 3%, far below the 13% of the previous decade. But Xiao Mo believes that the US stock market will remain strong in the next decade.
In the latest release of the heavyweight annual report "Long Term Capital Market Hypothesis 2025 (LTCMA)", Xiaomo predicts that US large cap stocks - the stocks of large companies that have driven most of the recent gains - will continue to be the backbone of investors' investment portfolios, with an annualized return rate of 6.7% over the next 10-15 years, only slightly lower than last year's 7%.
The reason why Xiaomo is so optimistic is because the bank believes that American companies, especially large ones, are "very good at improving profit margins", and also need to be assisted by advances in technology and AI, as well as the steady growth of developed economies.
The global economy is entering a new era characterized by increased fiscal spending, increased capital investment, and stronger economic growth. The overall outlook remains optimistic as investment levels are recovering and interest rates are normalizing, "said David Kelly, Chief Global Strategist of the bank
He admitted that there may be unknown shocks, "I am very aware that valuations will be higher. But overall, we believe that American companies are extreme - they are agile and very good at increasing profits
Monica Issar, Global Head of Multi Asset and Portfolio Solutions at JPMorgan Wealth Management, said on Monday, "We want to ensure that people understand that we are assuming multiple contractions. Over the next 10 years, multiple contractions will be offset by healthier macroeconomic and corporate fundamentals, which are a more solid opportunity for investors to allocate capital
In addition, according to the above report, strategists from Xiaomo Asset and Wealth Management expect the US stock market to outperform cash and achieve robust returns after adjusting for inflation. In contrast, Goldman Sachs recently stated that there is a probability of approximately 72% that the return on such assets will lag behind bonds by 2034, with a 33% chance of underperforming inflation.
Goldman Sachs also warned that the annualized return rate of the S&P 500 index over the next 10 years will be only 3%, with an actual increase of only 1%. By comparison, the annualized total return rate of the index over the past 10 years is 13%.
Uncertainty continues to envelop us
These two completely different predictions indicate that even after the Federal Reserve shifted to easing monetary policy last month, Wall Street is still shrouded in broader uncertainty. This is partly because the US stock market has risen significantly in the past two years, driven by economic resilience, strong corporate profits, and the artificial intelligence boom.
Moreover, although Xiaomo's expectations are more optimistic than Goldman Sachs, according to calculations, the bank's expectations for the performance of the S&P 500 index are still lower than the long-term average annualized increase of 11% since its establishment in 1957 until the end of 2023.
Our long-term capital market assumptions provide a roadmap to address the complexity of today's markets, "said John Bilton, Global Head of Multi Asset Strategy at Xiaomo." This year's research findings emphasize the value of active management and alternative asset classes in generating alpha returns and diversification (asset allocation)
We encourage investors to invest in assets that can withstand inflation shocks and fiscal risks, and bonds remain crucial for diversification, "he added.
Issar stated, "This year's report emphasizes the importance of establishing a goal aligned investment portfolio that can withstand market volatility and seize growth opportunities. With significant opportunities emerging in infrastructure and other physical asset sectors, investors can leverage these areas to generate stable income and hedge against inflation