Goldman Sachs recently unveiled its long-term outlook for global equities, painting a picture of steady, albeit moderate, growth for U.S. stocks, while simultaneously pointing to more dynamic opportunities in markets beyond its borders. The investment giant anticipates the S&P 500 achieving a respectable but not unprecedented annualized return of 6.5% over the next decade. This projection places the index at 9,000 by 2030 and an even higher 11,100 by 2035. However, the true revelation from their analysis lies in the compelling prospects of emerging markets, which are poised for significantly greater expansion.
This comprehensive forecast emphasizes the critical need for investors to broaden their horizons beyond traditional U.S. tech-centric portfolios. With the U.S. dollar expected to gradually weaken and the transformative impact of artificial intelligence set to be a global phenomenon, the firm advocates for a strategic reallocation towards regions exhibiting robust structural growth and favorable demographic trends. The message is clear: while the S&P 500 remains a foundational element of any diverse portfolio, the pursuit of superior long-term returns necessitates embracing the burgeoning potential found in developing economies across Asia and beyond.
S&P 500: Steady Growth, But Not the Top Performer
Goldman Sachs's ten-year forecast for the S&P 500 suggests an annual return of 6.5%, primarily driven by a 6% increase in earnings per share, complemented by modest dividends and a slight valuation drag. This outlook, while positive, is considered historically average, falling within the lower quartile of the index's long-term performance. When adjusted for inflation, the projected real return dwindles to 4% annually, placing it in the 33rd percentile of past outcomes. This indicates a period of solid, yet unexceptional, growth for the U.S. equity market, prompting investors to seek higher-yielding alternatives elsewhere.
The investment bank predicts the S&P 500 to climb to 9,000 by 2030 and further to 11,100 by 2035, reflecting continued corporate profitability and market stability. However, chief global equity strategist Peter Oppenheimer highlights that U.S. companies are unlikely to benefit from the same level of favorable conditions that boosted profit margins in previous decades. The current high concentration within the U.S. equity market also introduces an element of uncertainty into long-term forecasts. Despite a projected range of 3% to 10% annual returns, the base case suggests a decent, but not outstanding, performance, underscoring the need for strategic diversification.
Emerging Markets and Asia: The Epicenter of Future Returns
The most compelling aspect of Goldman Sachs's analysis is its strong confidence in emerging markets, projecting an impressive 10.9% annual return in local currency and an even higher 12.8% in U.S. dollar terms over the next decade. This substantially outperforms the S&P 500's expected gains, driven by robust EPS growth, attractive dividend yields, and significant improvements in corporate governance, particularly in key economies like India, China, and South Korea. These regions are poised to benefit from structural economic strength, favorable demographics, and policy reforms aimed at enhancing shareholder value, making them prime candidates for substantial capital appreciation.
India, in particular, stands out with a projected 12.6% average annual earnings growth, fueled by strong GDP expansion and a young, growing population. Policy-driven initiatives are expected to increase dividend payouts and share buybacks across the emerging market landscape, with the MSCI EM dividend yield anticipated to rise from 2.5% to 3.2% by 2035. Asia, excluding Japan, is also forecast to deliver solid 10.3% annual returns. This strong performance, coupled with an expected depreciation of the U.S. dollar and the global spread of AI benefits beyond U.S. tech giants, positions emerging and Asian markets as the primary engines of long-term investment growth and diversification for global portfolios.