The End of an Era for S&P 500 Returns?

Hi everyone,

I hope you’re all doing well. I wanted to take a moment to discuss a significant shift that’s caught the attention of the financial world this week – the S&P 500’s decade of exceptional returns may be coming to an end, according to Goldman Sachs.

For the past ten years, we’ve seen the S&P 500 yield an impressive 13% annualised return. That’s certainly provided strong returns for many portfolios. However, Goldman Sachs has released a forecast suggesting that over the next decade, we might see a sharp slowdown, with the S&P 500 expected to deliver just 3% annualised returns – a dramatic drop compared to what we’ve grown accustomed to.

Why the Slowdown?

There are a few key factors driving this outlook. Firstly, valuations are currently quite stretched, and a significant portion of the index’s performance has been reliant on just a handful of large companies. The top 10 firms now account for more than a third of the S&P 500’s overall market capitalisation. As growth in these mega-caps begins to decelerate, it’s likely to drag down the broader index’s returns.

Secondly, Goldman’s analysts highlight the increasing risk of economic contractions. They predict that over the next ten years, the U.S. economy could experience contractions in about 10% of quarters – a reality that could further suppress stock returns.

What Does This Mean for Investors?

So, what does this mean for us as investors? It’s important to understand that we might be entering a period where equity returns are less competitive when compared to bonds and inflation. Goldman Sachs suggests there’s a 72% chance that stocks will underperform bonds over the next decade, and a 33% probability of them underperforming inflation. This could call for a reassessment of portfolio allocations and a more cautious approach to risk.

A New Strategy for a New Era?

While these predictions may seem concerning, they also present an opportunity to explore more diversified investment strategies. Real estate and alternative assets, like the ones we focus on at TAB, could become increasingly attractive in this environment. Additionally, with gilt yields and bond rates offering more competitive returns than they have in recent years, there’s a growing case for considering these safer, income generating assets. TAB’s innovative approach to real estate-backed investments allows investors to benefit from secured, asset-backed opportunities while gaining exposure to a market that may outperform equities in the coming years.

By incorporating a mix of property, gilts, and fixed-income securities, we can build more resilient portfolios designed to navigate this new investment landscape. With the right approach, achieving strong, steady returns is still possible, even if the stock market enters a lower-return phase.

As always, I’d love to hear your thoughts on this outlook and discuss how we can adjust strategies moving forward. It’s a changing landscape, but with foresight and careful planning, we can continue to find growth opportunities.

Best regards,

Samuel Leach Founder of Samuel and Co Trading & Head of Investor Relations, TAB