Goldman Sachs predicts that the annual return rate of the S&P 500 index in the next ten years will only be 3%, but investor Yardeni opposes this view, believing that the stock market will experience a prosperity similar to the Roaring Twenties, with an annual return rate close to 11%. He points out that although Goldman Sachs believes that market concentration is high, the fundamentals of technology companies are more robust, and the widespread adoption of technology will drive productivity growth, supporting economic development. Yardeni believes that the possibility of a prosperous stock market in the next ten years is greater than Goldman Sachs' conservative forecast
Earlier this week, Goldman Sachs released a ten-year stock market outlook, pointing out that the S&P 500 Index is expected to have an average annual return of only 3% over the next decade, with a potential range between -1% and 7%.
However, this forecast did not receive Yardeni's endorsement, as he has been advocating for a roaring twenties-like prosperity in the stock market over the past two years, citing the continuous growth in productivity.
"We believe that even Goldman Sachs' optimistic scenario is not optimistic enough," Yardeni stated in a report on Tuesday.
Yardeni pointed out that with the U.S. economy growing at a rate of 3% per year and inflation moderating to around 2%, the average annual return of the stock market over the next decade should be close to 11%.
"It's hard to imagine the total return of the S&P 500 Index in the future being only 3%. Just from the compounding of reinvested dividends, the return is much higher than that," Yardeni said.
Goldman Sachs' main argument for the long-term bearish view on the stock market is the very high concentration of a few stocks.
But Yardeni believes this is a result of fundamentals.
"Although the information technology and communication services sectors currently account for about 40% of the entire S&P 500 Index, similar to the level during the peak of the internet bubble, the fundamentals of these companies are much more robust now than they were back then," he said.
Yardeni explained that these two sectors represent over a third of the profit potential of the S&P 500 Index, compared to less than a quarter during the peak of the internet bubble in 2000.
Furthermore, with technology permeating all areas, the definition of "tech companies" has been distorted, which helps drive productivity surges, supporting economic growth and controlling inflation.
Overall, if the current trends continue, Yardeni envisions a scenario where the stock market prosperity of the roaring twenties will extend into the next decade, challenging Goldman Sachs' conservative view.
"If earnings and dividends continue to grow at a robust pace and profit margins rise due to technology-led productivity growth, the likelihood of an impending lost decade for the U.S. stock market is slim," Yardeni said