Wall Street’s recent outlook for the S&P 500 has taken on a more cautious tone. In October, Goldman Sachs projected a modest 3% annual return for the index over the next decade, a figure below current 10-year Treasury yields. JPMorgan is slightly more optimistic, with an estimated 5.7% annualized return, while Bank of America foresees 1-2% per year, though they expect dividends to lift this total.
These predictions, less bullish than usual, have drawn significant attention. Lance Roberts, RIA Advisors’ chief investment strategist, addressed these projections in an October 25 report, ultimately agreeing with the banks’ forecasts. “Current valuations suggest average returns will be muted over the next 10 years,” Roberts noted, emphasizing that historically high valuations could signal caution as well as optimism. Roberts’ analysis points to the Shiller CAPE ratio, a 10-year average of price-to-earnings ratios, showing the S&P 500 is trading above its long-term trend. “When the market prices in perfection, any disappointment can trigger significant corrections,” Roberts said.
He warned against “recency bias”—the tendency to assume that the recent strong performance will continue. With rising inflation and less accommodative central banks, returns may not match those of the past 15 years. For those considering new investments, high valuations mean tempered future returns, though long-term holders may feel less impact.
Roberts also reminds investors that these forecasts are averages; returns will fluctuate year by year. Economic indicators are mixed, with inflation cooling and unemployment steady, though October payrolls showed slow job growth affected by strikes and natural disasters. “Take these numbers with caution,” commented labor economist Sam Kuhn from Appcast, after Friday’s payroll report.
As the S&P 500 rose 0.4% on Friday to 5,728, some early signs of a slowing job market emerged, including downward payroll revisions and declining job openings. To stave off a potential recession, the Federal Reserve is expected to continue easing rates, though whether these measures will sustain economic momentum remains to be seen.
“There will be strong bull markets, as we’ve seen over the past decade, but those highs come with inevitable lows,” Roberts concluded. “While interventions can delay cycles, market and economic reversion is inevitable.”
