Goldman Sachs recently stirred market discussions with a report forecasting a challenging decade for the U.S. stock market. After a high-growth period over the past ten years, Goldman projects that the S&P 500 index may face what it describes as a "lost decade," with an average annual return of only 3%, potentially ranging between -1% to 7%.
Ed Yardeni, President of Yardeni Research and a longstanding Wall Street bullish investor, criticizes Goldman's prediction as too conservative. Yardeni argues that due to ongoing productivity improvements, the U.S. is poised for a "Roaring Twenties" type of investment boom, expecting average annualized returns of about 11% assuming 3% economic growth and 2% inflation over the next decade.
Goldman's cautious outlook is mainly based on the market's heavy concentration in a few stocks. However, Yardeni believes that current fundamentals, particularly in the information technology and communication services sectors, are much stronger than during the 2000 dot-com bubble. These sectors now account for over a third of the S&P 500’s earnings capacity, compared to less than a quarter during the peak of the dot-com era.
Yardeni emphasizes that technological advancements are driving productivity across various industries, enhancing economic growth and controlling inflation. He is optimistic about the stock market's potential to significantly outperform the broader economy, similar to patterns seen in the 1920s.
The U.S. stock market faced declines recently due to rising Treasury yields, which pressured large-cap stocks, and waning investor confidence in significant Federal Reserve interest rate cuts. The S&P 500 index fell by 53.78 points, or 0.92%, closing at 5797.42, marking significant annual gains of over 22% with 47 record highs so far this year.
