Goldman Gives this a 90% Chance of Happening Over Next Decade

Strategists at Goldman Sachs, led by David Kostin, estimate that the S&P 500 will generate average annual returns of 6% over the next decade. This according to an article in MarketWatch.

The Goldman team arrived at their estimate using five factors:

  • Absolute valuations
  • Relative valuations
  • Equity allocations
  • Dividend yield estimates
  • Economic modeling

“To make a long story very short,” the article says, “the cyclically adjusted price-to-earnings ratio is a high 26.5, but interest rates are incredibly low. Maybe the more notable insight is that stocks have a 90% chance of beating bonds, since the 10-year Treasury yields a puny 0.63%.”

The Goldman team also outlined the following risks related to its prediction:

  • Deglobalization—which puts sales and earnings at risk.
  • Taxes—Joe Biden’s proposed plan implies a 12% drop to S&P 500 earnings.
  • Labor costs, demographics, and index composition—the S&P 500 has averaged a 35% turnover every decade since 1980.