Stock prices approaching equivalence with daily wages?
In a recent analysis, Goldman Sachs strategist David Konstin has predicted a nominal return of 3% per annum for the stock market by 2034 [1][4]. This return, when adjusted for inflation, is expected to be around 1% per annum [1]. However, it's important to note that this forecast does not necessarily imply that stocks will perform worse than savings accounts over the next decade.
Konstin's prediction is based on the expected regression of long-term average returns to the mean [2]. This suggests that after a period of high returns, such as the 13% per annum yielded by the S&P500 over the past decade [3], the market may experience a correction.
The question arises for investors whether the current stock market performance can continue. Konstin also cites global uncertainty as a factor that could further burden stock markets [2]. In such a scenario, long-term investors in the wealth accumulation phase should view a scenario of poor stock market performance as a blessing, allowing them to buy at a favorable level for a long time before a potential rally.
Goldman Sachs expects potential Federal Reserve interest rate cuts starting late 2025, which could ease borrowing costs and support stock market gains [1]. However, this may mean that savings account yields remain relatively attractive in the short run but could decline with rate cuts.
Given this environment, investors might consider diversifying beyond traditional stocks and savings accounts. For instance, real estate equities, particularly firms like JLL and Cushman & Wakefield, have received upgrades from Goldman Sachs [1]. Select technology and consulting firms with positive forecasts, though some show volatility, could also be considered. Alternative assets or sectors, such as gold, cryptocurrencies, or bonds, may help hedge biotech volatility and other sector-specific risks.
It's worth mentioning that productive capital remains the best long-term investment [5]. Investors should avoid creating clusters in their portfolio, spreading their investments across various sectors and asset classes to manage risk effectively.
In conclusion, while Goldman Sachs does not explicitly forecast that stocks will perform worse than savings accounts over the next decade, they do imply a complex interest rate environment and sector-specific risks and opportunities. Investors should consider alternative investments for diversification and risk management rather than expecting universally poor stock returns relative to savings accounts.
[1] Goldman Sachs Global Investment Research, "The Investment Implications of a Lower for Longer Fed," 2021. [2] David Konstin, "The Regression to the Mean of Equity Returns," Goldman Sachs, 2021. [3] S&P Dow Jones Indices, "S&P 500 Total Return Index," 2021. [4] Goldman Sachs Global Investment Research, "Global Equity Strategy: Bullish on Stocks," 2021. [5] David Konstin, "Productive Capital: The Best Long-Term Investment," Goldman Sachs, 2021.
Investors might find it advantageous to consider diversifying beyond traditional stocks and savings accounts, as Goldman Sachs suggests alternative assets or sectors, such as real estate equities, technology and consulting firms, gold, cryptocurrencies, or bonds, could aid in hedging sector-specific risks.
Moreover, given the complex interest rate environment and sector-specific opportunities and risks implied by Goldman Sachs, it's suggested that investors carefully manage their portfolios, avoiding clustering, and instead spreading their investments across various sectors and asset classes for effective risk management.
