• Firms differ over the long-term outlook for US equity returns
  • Corporations are ‘very good at growing margins:’ JPM’s Kelly

Strategists at two of Wall Street’s biggest banks have reached diverging conclusions about where the US stock market is heading in the years ahead.

With the S&P 500 Index hovering near record highs, strategists at Goldman Sachs Group Inc. are warning that stocks may deliver a paltry 3% annually in the coming years — restrained by an already-high starting point and elevated Treasury yields that could siphon money off into bonds and other types of assets.

Over at JPMorgan Chase & Co.’s asset and wealth-management divisions, analysts offer a more benign outlook. They’re anticipating that US large-cap equities — the big company stocks that have driven much of the recent gains — will remain a pillar of investors’ portfolios and return an annualized 6.7% over the next 10-15 years.

While the rally has made prices a bit harder to justify when plotted against earnings — and the bank’s strategists say valuations will eventually need to go down — they anticipate that solid fundamentals will compensate for that.

“We want to make sure that people do understand that we are assuming multiple contraction,” Monica Issar, JPMorgan Wealth Management’s global head of multi-asset and portfolio solutions, said at a round-table on Monday. “Multiple contraction will be offset with healthier macro and corporate fundamentals over the next 10 years, and that foundation is a sturdier point in time for investors to allocate capital.”

Still, the bank’s estimate for S&P 500 performance trails the long-term average of an annualized 11% since the benchmark’s inception in 1957 through the end of 2023.

The diverging forecasts signal the broader uncertainty that’s hovering over Wall Street even after the Federal Reserve’s long-awaited pivot last month toward easing monetary policy. That’s in part because of how much stocks have already rallied the past two years thanks to the resilient economy, strong corporate profits and speculation about artificial intelligence breakthroughs — sending the S&P 500 to a 22% gain this year. It’s up more than 60% since bottoming out in October 2022.

Goldman Sachs declined to comment further.

The strategists at JPMorgan’s asset and wealth-management arms expect US stocks to trounce cash and deliver solid post-inflation returns, according to a report looking ahead to the state of capital markets in 2025. In contrast, Goldman says there’s a roughly 72% chance the asset class will trail bonds and a one-third chance equity returns will lag inflation through 2034.

Part of the JPMorgan team’s optimism stems from anticipation that artificial intelligence will pay off by delivering higher revenue growth and fatten profit margins, especially for the big companies that are investing heavily in the technology.

“I am very conscious of higher valuations, I feel more confident in our numbers than theirs over the next decade,” said David Kelly, chief global strategist at JPMorgan Asset Management. He attributed poor performance in the first decade of the 2000s to the global financial crisis and acknowledged the possibility of unknown shocks. “But overall, we think that American corporations are extreme — they’ve got sharp elbows and they are very good at growing margins.”

Written by:  and   — With assistance from Vildana Hajric, Sagarika Jaisinghani, and Lu Wang @Bloomberg