(NewsNation) — The stock market has been booming over the past decade but returns could be much lower in the years ahead, according to a new forecast.
The S&P 500 — the broad market index — is expected to produce an annualized nominal return of just 3% over the next decade, Goldman Sachs’ equity strategy team said in an analysis reviewed by CNBC.
If that happens, it would be a significant decrease from the 13% annual return the last decade, which was higher than the long-term average of 11%.
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“Investors should be prepared for equity returns during the next decade that are toward the lower end of their typical performance distribution,” the team wrote in a note dated Oct. 18, per Bloomberg.
One of the main reasons for the lower forecast? High market concentration.
The so-called “Magnificent Seven” stocks — companies like Apple, Microsoft and Nvidia — have driven much of the recent returns and it’s “extremely difficult for any firm to maintain high levels of sales growth and profit margins over sustained periods of time,” the strategy paper noted.
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In other words, if a few stocks dip it could drag down the overall stock market.
The Magnificent Seven generated nearly 60% of the S&P 500 Index’s return year to date through June, according to a report from investment firm Boston Partners. In 2023, that figure was 62%.
In fact, the recent rise in stock market concentration has been the steepest in 60 years and is now at a multi-decade high, J.P. Morgan wrote in a report earlier this year.
U.S. equities have surged over the past decade and the S&P 500 is on track to outperform the rest of the world in eight of the last 10 years, according to data compiled by Bloomberg.
The S&P 500 has notched 47 record highs so far in 2024 and could go higher after the election as has historically been the case, Bloomberg said.
JPMorgan Chase, the world’s biggest bank, has also warned investors to brace for lower returns over the next decade. The analyst team there is slightly more optimistic, forecasting a 5.7% average annual return for the S&P 500 over the next ten years in a report last month.