The stock market has achieved this feat only twice in the past three decades, with warning signs starting to appear. Despite high valuations, some companies are attractively priced, and analysts predict an 8% annual return for an equal-weight S&P 500 index fund in the next decade.
The Stock Market Is Doing Something It Has Done Only 2 Times Since 1985, and History Is Clear About What Happens Next
Trevor Jennewine updated on December 11, 2024, that warning signs are starting to appear in the stock market. The S&P 500 is widely regarded as the best gauge for the entire U.S. stock market and has returned 27% year-to-date in one of its strongest performances of the 21st century.
Despite the gloomy outlook, there are some silver linings for investors. A handful of companies are the primary culprits behind the high valuations, and their premium valuation is the largest since the dot-com boom in 2000. This means that the other 490 stocks are priced more attractively, which implies more upside.
Goldman analysts estimate an equal-weight S&P 500 index fund will return 8% annually in the next decade, beating the traditional S&P 500 by 5 percentage points per year. This prediction reflects their belief that the 10 largest stocks will struggle to outperform in the coming decade.
The S&P 500 is currently trading at a historically expensive forward PE multiple, which means investors should be particularly cognizant of valuations when buying stocks in the current market environment. It’s also a good time to accumulate extra cash to capitalize on the next correction or bear market.
