Goldman Sachs Forecasts 7.7% Decade Returns in Global Equity Outlook Driven by Earnings and Payouts

Global equities are poised for strong long-term growth, despite high market valuations, according to a recent forecast by Goldman Sachs. The investment bank predicts an annualized return of 7.7% in US dollar terms over the next decade. This projection, outlined in their latest Global Strategy Paper, is supported by structural factors such as nominal growth, profitability, and shareholder payouts, suggesting that investors can expect solid returns even in a challenging market environment.

Goldman Sachs has released its latest Global Strategy Paper, titled “Building Long-Term Returns: Our 10-Year Forecasts,” which outlines a positive outlook for global equities. The bank anticipates a total return of 7.7% over the next ten years, despite the current high valuations in the market. This estimate aligns closely with historical medians and is underpinned by several structural factors, including nominal growth and profitability. The firm emphasizes that earnings growth will be the primary driver of returns, projecting that global earnings, including buybacks, will increase by approximately 6% annually. Additionally, dividends are expected to contribute around 2% to overall returns, while valuation changes may slightly hinder growth over the decade.

Regional Variations in Returns

The forecast also highlights significant regional variations in expected returns over the next ten years. Emerging markets are projected to lead with the highest returns at 10.9%, driven largely by robust earnings growth in countries like China and India. Asia excluding Japan is expected to yield returns of 10.3%, supported by a 9% growth in earnings and a 2.7% dividend yield. Japan is forecasted to deliver an 8.2% return, aided by economic reforms and a 6% growth in earnings per share. In contrast, Europe is anticipated to return 7.1%, with dividends and buybacks contributing significantly to this figure. The United States, however, is expected to lag behind with a projected return of 6.5%, attributed to high valuations and modest dividend payouts.

The Impact of Market Valuations

Goldman Sachs acknowledges that current market valuations, which stand at around 19 times forward earnings, are elevated. However, the bank argues that valuation alone does not tell the whole story. They point to higher profit margins and improved return on equity as factors that support these valuation levels. While the report does not specifically model the impact of artificial intelligence on market returns, Goldman Sachs suggests that AI could provide additional upside potential, benefiting a broad range of sectors beyond just US technology companies. The bank’s baseline scenario does not account for extreme market shocks or overly optimistic projections, but alternative scenarios suggest a wide range of possible annualized returns from 3.6% to 10.5%.

Despite the uncertainties in the market, Goldman Sachs remains optimistic about the long-term prospects for global equities. The bank reassures investors that they can expect favorable outcomes, stating, “We expect global equities to deliver solid long-term returns despite elevated valuations.” This outlook encourages investors to maintain a long-term perspective, focusing on the underlying growth potential of global markets rather than short-term fluctuations. As the investment landscape continues to evolve, Goldman Sachs’ insights provide a valuable framework for understanding potential returns in the coming decade.

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