Remember when Goldman Sachs told us the stock market was basically going to be a snooze fest for the next decade? Yeah, about that…
Back in October 2024, David Kostin—Goldman’s chief equity strategist at the time—dropped a real party pooper of a forecast: the S&P 500 would return a measly 3% per year over the next ten years. He wasn’t alone either. Half of Wall Street was basically saying “buckle up for a lost decade,” citing the S&P 500’s sky-high valuation multiples as the culprit.
The math seemed airtight. When valuations get expensive, future returns tend to be disappointing. It’s like paying $50 for a sandwich—you’re not getting $50 worth of satisfaction.
Fast forward to today, and Goldman’s new chief equity strategist, Ben Snider, is singing a different tune. The bank now forecasts 7% annualized returns over the next decade. That’s more than double what they said just a couple years ago. Still below the S&P 500’s historical average of around 10%, but hey, we’ll take it.
So what changed? Did the market suddenly become cheap? Nope. The S&P 500’s CAPE ratio (a fancy valuation metric) actually got more expensive, sitting at 40 today versus 38 when Kostin made his gloomy call. By the old logic, that should mean even worse returns ahead.
Here’s where it gets interesting: Snider is basically saying the old playbook doesn’t apply anymore. His argument? Valuations don’t have to mean-revert to their historical averages because the underlying fundamentals have shifted.
Two things drive valuations: interest rates and corporate profits. Both are nowhere near their long-term averages. S&P 500 profit margins are hanging out at a beefy 13% today, compared to just 5.5% back in 1980. Meanwhile, interest rates—while they’ve climbed since 2022—are still well below their historical norms. Low rates and fat profit margins have historically meant higher valuations, and Snider doesn’t see either trend reversing anytime soon.
“It doesn’t seem very likely that those will return to their long-term averages,” Snider told Business Insider, basically saying the old assumptions are outdated.
But here’s the catch: if profit margins and interest rates aren’t going to mean-revert, they also probably aren’t going to keep accelerating at their current pace. That’s why Goldman’s still forecasting below-average returns—good, but not great.
Not everyone’s buying the optimism, though. Richard Bernstein, founder of Richard Bernstein Advisors, is still harkening back to the 2000-2009 period when stocks went nowhere. And other strategists like Torsten Sløk at Apollo are still warning about a decade of flat returns.
So what’s the takeaway? Goldman went from “stocks are doomed” to “stocks are fine, actually,” and the reason is surprisingly logical: the world has changed, and the old rules about expensive markets don’t necessarily apply. Whether that’s comforting or terrifying probably depends on your portfolio.
