Goldman Sachs Reverses 'Lost Decade' Call on U.S. Stocks, Raises 10-Year Return Forecast to 7%
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Goldman Sachs raised its 10-year annualized S&P 500 return forecast from 3% to 7%, effectively abandoning its earlier 'lost decade' call; yet 7% still trails the index's ~10% long-run average since the 1950s, and Wall Street remains deeply divided on the outlook.
Why did Goldman change its mind?
The core logic boils down to one claim: the two key drivers of valuation multiples — corporate profit margins and interest rates — have drifted far from historical averages and are unlikely to revert anytime soon.
This means → the old playbook of anchoring future valuations to long-run averages no longer holds, in Goldman's view.
The numbers: S&P 500 profit margins sit at roughly 13% today versus just 5.5% in 1980; rates have risen since 2022 but remain well below their long-term mean.
In plain terms = companies earn more than they used to, and borrowing costs are still relatively low — those two facts prop up high valuations, and Goldman sees no quick reversal.
With valuations this high, where does the 7% come from?
When former chief strategist David Kostin issued the 3% forecast in October 2024, the S&P 500's CAPE — cyclically adjusted price-to-earnings ratio, a gauge that smooths profits over ten years to measure how expensive the market is — stood at roughly 38×.
CAPE has since climbed to 40×; the traditional historical relationship implies a return near 0%.
This means → new chief strategist Ben Snider's 7% forecast rests entirely on the assumption that valuations will stay elevated rather than mean-revert — if that assumption is wrong, returns could land far below 7%.
Why is 7% still below the historical average?
Snider himself concedes that favorable margin and rate trends are a double-edged sword.
These factors are unlikely to mean-revert, but they are also unlikely to keep improving at their past pace.
In plain terms = the good news is "the floor has been raised"; the bad news is "the ceiling is here too" — the story of margins climbing from 5.5% to 13% is hard to repeat.
What does the rest of Wall Street think?
Richard Bernstein cited the 2000–2009 period of negative S&P 500 returns, warning that today's high valuations carry similar risks.
Apollo chief economist Torsten Sløk and The Mather Group CIO Tim Ayles both recently said the S&P 500 could deliver flat returns over the next decade.
This reflects a divide that Goldman's pivot has not closed — the bulls revised their numbers, but the bears have not revised their logic.
I don't think investors should expect valuation multiples to fall back to their long-term historical averages. These two factors are unlikely to revert to long-run means, so the argument that multiples should revert to historical averages is not compelling.
Ben Snider
Goldman Sachs Chief US Equity Strategist
(June 29, Business Insider interview)
Content is for reference only, not financial advice.