All right, so you know how everyone's always trying to predict what's going to happen in
the stock market.
Always.
Well, Goldman Sachs, they just came out with a report that's got everyone kind of buzzing.
Yeah, what's their take?
They're saying we should brace ourselves for some potentially, well, lower returns over
the next decade.
Hmm.
Not exactly the news everyone wants to hear.
So we're going to try to break down what they're thinking and figure out what this could actually
mean for everyday investors like you and me.
Sounds like a plan.
What exactly are they predicting?
So get this.
They're saying we might only see like 3% annual returns.
3%?
3% per year until 2034.
That's a big drop, especially when you think about the average we've seen over the past
10 years.
That's a huge difference.
What was the average over the last decade?
It was whopping 13%.
It's a steep decline.
Yeah, it makes you wonder.
So naturally everyone's asking why?
Why so gloomy Goldman Sachs?
Well, they actually give five key reasons.
And the first one, valuations.
Valuations, meaning?
Meaning they basically think the market is just too expensive right now, like a designer
handbag that everyone wants, but it's way overpriced.
I get the analogy, but how do they measure that, this expensiveness?
Okay.
So they point to this thing called, you ready for this?
The S&P 500, cyclically adjusted PE ratio.
The what now?
That's a mouthful.
I know, right.
Break that down for me.
What is that?
Well, lucky for us, we've got an expert here to explain all the financial jargon.
Happy to help.
So at its core, a PE ratio is basically a price tag for a company's earnings.
It tells you how much investors are willing to pay for every dollar of profit.
Okay, that makes sense.
But what about that cyclically adjusted part?
Why add that on?
Right.
The cyclically adjusted part basically means they're taking into account all those economic
ups and downs.
So it's like a fancy, more accurate version of a regular PE ratio.
I see.
So it's like comparing apples to apples, right?
Exactly.
You got it.
Now, when this ratio gets really high, it often means investors are betting on big future
growth.
They're basically paying a premium because they think those earnings are going to skyrocket.
Kind of like buying a stock based on hype, hoping it'll become the next big thing.
Kind of, yeah.
But there's a catch.
If those expectations don't pan out, well...
The price could crash.
Exactly.
And you know what's interesting?
Goldman Sachs points out that this ratio was at its peak right before, wait for it, the
1930s crash.
You're kidding.
So it's like a historical red flag.
It does make you think, doesn't it?
It definitely does.
But hold on.
It can't just be about some historical coincidence, right?
Right?
There's got to be more to it.
Oh, there's definitely more.
JPMorgan has tons of data and it shows a clear pattern.
When this P-E ratio starts high, the average return over the following years is usually
lower.
So basically chasing those super high returns could backfire in the long run.
Exactly.
It's a reminder that sometimes slow and steady wins the race.
Food for thought for all those get rich quick schemes out there.
Okay, let's say this P-E ratio is high.
We should be cautious.
Does that automatically mean like ditch all our stocks?
Now, hold on, we got to remember that the market's a dynamic thing.
History can guide us, yeah, but it doesn't dictate the future.
You know what I mean?
Fair enough.
So valuations are one piece of the puzzle.
What else is Goldman Sachs worried about?
Their second concern is about market concentration.
Basically they're saying a handful of huge companies like NVIDIA and the Magnificent 7
Tech giants are having a disproportionate impact.
It's like they're the stars of the show and everyone else is just backup dancers.
That's a good way to put it, but what if those stars, you know, they start to fade?
Yeah, that's what Goldman Sachs is worried about.
They argue that these big companies can't keep growing at this crazy pace forever.
Eventually things have got to level out and if those giants stumble, the whole market could
take a hit.
They even have a chart that shows this trend.
They call it market cap dominance, which basically means the biggest companies are taking up more
and more of the overall market.
In those top 10 stocks, they made up a huge chunk of the S&P 500 now.
It's getting kind of crowded at the top.
So it's a bit like putting all your eggs in one basket, right?
If that basket drops.
Not good.
But you know, we got to be careful about comparing today's market to past events like the dot
com bubble.
Because back then a lot of those companies had crazy valuations but weren't actually
making much money.
It was all hype.
Exactly.
But these tech giants today, they're making serious bank.
And JP Morgan's data shows that profit margins for companies in the S&P 500 have gone way
up since 2002.
So it's like, are these companies just bigger and more established now or are we setting
ourselves up for another dot com style crash?
Tough colon.
Yeah, no easy answers there.
It really makes you think about whether today's market is playing by a totally different set
of rules.
So we've got potentially overpriced stocks and an overreliance on a few big companies.
What else is on Goldman Sachs's list of worries?
Well, this one might hit a little closer to home.
They're predicting we'll see more economic contractions in the next decade.
More contractions.
Like recessions.
Yeah.
Basically periods where the U.S. economy actually shrinks.
They're estimating maybe four contractions, which would be like 10% of all the quarters.
Whoa.
That's a bit unsettling.
But isn't predicting the economy kind of like, I don't know, predicting the weather impossible
to be 100% right?
You're not wrong.
Forecasting economic swings is tough, no doubt.
But the stock market, it tends to react pretty negatively to any kind of economic contraction.
So even if those contractions are short lived, they could still drag down the overall market
performance.
Makes sense.
Historically, during those quarters with the shrinking GDP, the market averages a negative
1% return.
Which, not great.
So maybe all this fear about a potential slowdown, it's already priced into the market.
You know, that's a really good point.
The market's always trying to anticipate what's next.
So if everyone's expecting a contraction, it might already be reflected in those stock
prices.
It's like the market's a giant complex puzzle.
We've got three pieces figured out, but there's still two more to go.
What's next on Goldman Sachs's list?
They're diving back into the corporate world for this one.
They're saying we should expect lower corporate profits in the years to come.
Lower profits?
How does that impact the stock market?
Well, when companies aren't making as much money, you know, investors aren't as willing
to pay top dollar for their stock.
So lower profits could mean lower stock prices.
Got it.
It makes you think about all those companies that were once considered giants, you know,
like Nokia, Blackberry, Xerox.
Themes we all knew.
What happened?
They just faded away.
It's a good reminder that even the biggest, most successful companies can stumble.
Predicting which ones will thrive and which ones will fizzle out.
That's almost impossible.
The business world is a constantly changing landscape.
Look how much things have changed just in the past few decades with the internet and
smartphones and everything.
Yeah.
Who could have predicted all that back then?
So if it's so hard to predict the future of individual companies, how can we even try
to predict what'll happen to the whole market?
That's the challenge, isn't it?
All right.
So, when Sax is fifth and final point, what's their last argument for lower stock market
returns?
This one's all about alternative investments and it has to do with interest rates.
Interest rates.
How do those play into this?
Well, with 10-year US Treasury yields above 4% right now, investors have another pretty
attractive option.
So they can lock in a safe return without all the risk and volatility of the stock market.
Exactly.
They're choosing between a wild roller coaster ride and a relaxing stroll in the park.
Some people just prefer that steady, predictable path.
And right now, savers can get a decent return without having to stomach all those market
ups and downs.
But what about all those gains the stock market has made in recent years?
Didn't the S&P 500 do pretty well in 2023 and 2024?
True.
There's always a trade-off.
Some folks might have missed out on those gains because they chose the safer option.
So it's a gamble either way.
Kind of, yeah.
And the truth is, nobody can perfectly time the market.
It's impossible to know exactly when to buy and sell to maximize your returns.
So even with all their expertise, Goldman Sachs can't tell us for sure what's going
to happen.
Makes sense, I guess.
But it kind of makes all this predicting seem pointless.
Well, it reminds us that past performance doesn't guarantee future results.
That's a good point.
And remember that report Vanguard put out a while back, the one predicting lower stock
market returns.
Yeah, it made headlines.
Well, they were way off.
The market actually did much better than they expected.
Proving that even the big names can get it wrong sometimes.
Predictions are just predictions.
Not guarantees.
You know, it's funny.
Those negative predictions always seem to grab more attention, don't they?
Like those scary headlines.
Market crash imminent.
Oh, absolutely.
Fear sells, right.
A dramatic prediction gets more clicks than a boring, balanced analysis.
But we as investors, we got to be aware of that bias.
It's easy to get caught up in the fear and make rash decisions.
That's why it's crucial to have a long-term perspective.
Don't let those short-term jitters derail your whole investment strategy.
So what does all this mean for us as we try to navigate the market in the years to come?
I mean, if the experts can't predict the future, how are we supposed to make smart decisions?
Well, that is the million-dollar question, isn't it?
We can't control what the market does, but we can control how we react.
So it's all about making informed decisions and having a plan.
Exactly.
All right, so let's recap those five reasons Goldman Sachs gave for their less than optimistic
outlook, just to make sure we're all on the same page.
Sounds good.
So first up, we have those high valuations.
They're worried the market might be overpriced, which could lead to lower returns down the
road.
Right.
And second, there's that market concentration issue.
A few big companies are having a huge influence, and that could be a problem if those companies
stumble.
Yep.
Third, we've got the potential for more frequent economic contractions, which history tells
us aren't exactly good news for the stock market.
And then there's a whole declining corporate profits thing.
Lower profits often mean lower stock prices.
And finally, there's the appeal of alternative investments, especially with those rising
interest rates making bonds and other fixed-income securities look more tempting.
So they've laid out their case, but are they right?
That's the big question.
And unfortunately, none of us have a crystal ball.
Makes investing a bit of a gamble then, doesn't it?
It does.
There's always risk and uncertainty.
We make decisions based on the best information we have, but there are always those factors
we can't control.
It's like playing chess, but the rules keep changing, and your opponent is the entire
global economy.
That's a fantastic analogy.
It definitely highlights how important it is to stay flexible and be ready to adapt.
So what are the key takeaways for our listeners as they think about their own investment plans?
Well, diversification is essential.
Don't put all your eggs in one basket, as they say.
Spread your investments around.
Different asset classes, sectors, different parts of the world.
Exactly.
It's like having a backup generator for your portfolio.
If one part of the market takes a hit, you've got others to help soften the blow.
Love that analogy.
What else?
Remember that investing is a marathon, not a sprint.
Focus on your long-term goals and stay disciplined.
Resist those urges to panic sell when things dip or chase after the latest hot stock tip.
Solid advice.
Anything else?
Do your own research.
Don't just follow the crowd.
Talk to a financial advisor if you need to.
It's all about creating an investment strategy that works for you, for your goals, and your
risk tolerance.
All right.
I think we've covered a ton of ground today.
We've broken down Goldman Sachs' predictions, looked at the market from different angles,
and hopefully given our listeners some food for thought.
It's been a great discussion.
So before we wrap up this part of our deep dive, I want to leave our listeners with one
final thought.
If the future is really this uncertain, what can you do today to prepare yourself for whatever
the market throws your way?
What strategies will help you navigate this ever-changing financial landscape?
We'd love to hear your ideas in the comments.
We'll be back after a short break to explore some additional perspectives and offer some
final thoughts on navigating the uncertainties of the market.
Welcome back to our deep dive into Goldman Sachs' predictions.
We were just talking about how no one can perfectly time the market.
It's impossible to know exactly when to buy and sell, right?
Right.
And that brings us back to the core of what we're talking about today.
Predicting the market is always a bit of a guessing game.
So even with all their fancy algorithms and historical data, even Goldman Sachs can't
tell us for sure what's going to happen.
Nope.
And it's easy to get caught up in the headlines, you know?
But we got to remember that past performance isn't a guarantee if future returns.
It's like thinking you'll win the lottery just because you found a penny on the sidewalk.
Exactly.
It makes you realize that we're all in this together, trying to figure things out as we
go.
Speaking of getting things wrong, didn't Vanguard make some predictions a while back?
They did.
I think it was about 10 years ago they put out a report predicting lower stock market
returns.
Yeah.
Well, they were way off.
The market ended up doing much better than they expected.
See?
Even the most respected firms can miss the mark.
It just goes to show that no one has a crystal ball.
And let's be honest, those doom and gloom predictions, those always get the most attention,
right?
Oh, yeah, totally.
Market crash imminent.
Way more dramatic than steady growth continues.
Fear sells.
It's like clickbait for the financial world.
And as investors, we have to be wary of that.
Don't let those scary headlines make you do something you'll regret later.
Solid advice.
Stay calm, think long-term, and don't let emotions drive your investment decisions.
So if even the experts can't predict the future, what's the best way to approach investing
in the coming years?
That's the question we're all trying to answer, right?
We can't control the market's ups and downs, but we can control how we respond to them.
So focus on what we can control.
Got it.
Exactly.
Diversify your investments.
Spread your risk across different asset classes, different sectors, even different parts of
the world.
Don't put all your eggs in one basket.
Exactly.
And think of investing as a long-term game.
Don't get caught up in those day-to-day fluctuations.
Tune out the noise.
Exactly.
And most importantly, do your own research.
Don't just blindly follow the herd.
Take charge of your financial future.
Be informed, be proactive, and make decisions that feel right for you.
Absolutely.
And remember, investing is a journey.
There will be bumps along the way, but the key is to keep learning and stay engaged.
Well said.
Well, I think it's time to shift gears a bit.
You know, inject some positive energy into this conversation.
Talk about something that's exciting.
I like where you're going with this.
What's just thinking?
Innovation.
Yeah.
Now you're talking.
That's what it's all about.
We get so focused on analyzing the past and the present that we forget about the power
of innovation to, like, totally shake things up.
You're right.
Throughout history, we've seen how new technologies create whole new industries and drive massive
economic growth.
It's like, remember those sci-fi movies we used to watch?
Online cars, teleportation, all that stuff.
It seemed so impossible back then.
Yeah.
And now look at us.
We carry around these little computers in our pockets that can access pretty much all
the information in the world.
It's mind-blowing.
And the crazy thing is the pace of innovation, it's just getting faster and faster.
Exactly.
Which means it's even harder to predict what the future holds.
And that creates both opportunities and risks for investors.
Absolutely.
So how do we even begin to wrap our heads around investing in a future that's so unpredictable?
Well, we can't predict the future, that's for sure.
But we can look for emerging trends, right?
See where things are heading.
Like, give me an example.
Sure.
Take the shift towards renewable energy.
That's a trend that's only going to grow.
So investing in companies that are involved in solar, wind, clean energy technologies,
that could be a good bet.
Okay.
I see your point.
But let's be real.
Does everyone have the time or the expertise to analyze emerging trends and pick individual
stocks?
You're right.
Not everyone wants to be a stock-picking guru.
So what about the rest of us?
The ones who want a simpler approach?
Well that's where index funds and ETFs come in.
ETFs, those are exchange-traded funds.
You got it.
And with these, you're basically investing in a basket of stocks or bonds.
So you get broad exposure to the market without having to pick and choose individual winners
and losers.
Smart.
Exactly.
That's a question for folks who want a low-cost, diversified approach.
So we've got those high-risk, high-reward options like trying to pick the next big-tech
company and then we've got the more diversified approach with index funds and ETFs.
But with all this talk about risk and uncertainty, I got to ask, maybe it's just safer to stick
our money into savings account.
At least it's guaranteed, right?
That's a common question.
And it comes down to your personal circumstances, goals, and how much risk you're comfortable
with.
And you just don't like taking risks with your money.
Totally understandable.
But savings accounts, they usually offer pretty low returns.
Especially when interest rates are low.
Exactly.
And over time, that low return might not even keep up with inflation.
Meaning, your money could actually lose value over time.
Your saving.
But your purchasing power is shrinking.
Exactly.
So while the stock market has its risks, it also offers the potential for higher returns,
which can help you grow your wealth and reach those financial goals.
So it's all about finding that balance between risk and reward.
Absolutely.
It's about finding an approach that you're comfortable with, one that lets you sleep well
at night.
Well said.
And I think that's a good place to wrap up this deep dive.
Yeah, we've covered a lot of ground.
We analyzed those Goldman Sachs predictions, looked at the market from all angles, and
hopefully gave our listeners some things to think about as they plan their own financial
futures.
It's all about making informed decisions, right?
Right.
There's no one-size-fits-all approach.
What works for one person might not work for another.
So do your research, think critically, and most importantly, make choices that align
with your goals and your risk tolerance.
Thanks for joining us on this deep dive into the world of market predictions, innovation,
and investing.
We'll see you next time.