The golden era of S&P 500 gains is over, Goldman Sachs says

The S&P 500 index has been an investment juggernaut. The weighted index tracks the 500 largest companies traded in the U.S. and in 2024, it’s up 24%. Over the past 10 years, it’s averaged 13% gains every year. And since its inception, it’s gained an average of about 10% per year. But Goldman Sachs says the golden era is over, at least for the next decade.

The investment group says the index is on track to return 3% a year over the next 10 years, a far cry from its double-digit average. They say it’s more likely than not U.S. Treasury securities will bring bigger gains, and said investors should be ready for lower equity returns.

Chief U.S. Equity Strategist David Kostin said a big reason for the gloomy outlook is the high level of concentration in the basket of stocks. Because the S&P 500 index is weighted by company size, the so-called Magnificent Seven stocks make up nearly a third of it. Those stocks are Apple, Microsoft, Amazon, Alphabet, Telsa, Meta and Nvidia.

“Our historical analyses show that it is extremely difficult for any firm to maintain high levels of sales growth and profit margins over sustained periods of time,” Kostin said.

Kostin also said they expect an equal-weighted alternative to the S&P 500 will perform better than the weighted one over that time, as assets outside of technology see bigger gains.

In 2007, Warren Buffett famously made a $1 million bet that he could outperform hedge fund managers over a decade by investing in an S&P 500 index fund. He handily won.

“Consistently buy an S&P 500 low-cost index fund,” Warren Buffett said years ago. “Keep buying it through thick and thin and especially through thin.”

If Goldman Sachs’ projections are any indication, the thin times are coming. While their projected returns are lower than other estimates, the company is not alone in thinking the high-flying S&P 500 is set for a slowdown.

“I think you’re going to see a more muted performance [in stocks] – still upward, but more muted,” Raymond James Chief Investment Officer Larry Adam told CNBC.