Goldman predicts just 3% annual S&P 500 return over next decade, down from 13% last year
The S&P 500 will underperform over the next decade, given today’s high concentration in just a few stocks and high initial valuations, Goldman Sachs’ equity strategy team predicted.
The broad market index will produce an annual nominal total return of just 3% over the next 10 years, according to the team led by David Kostin, which would rank in just the 7th percentile of 10-year returns since 1930. That forecast is very down from rising gains from the past, as the S&P 500 has returned 13% annually over the past 10 years, above its long-term average of 11%, Goldman noted.
The broad market index has gained nearly 23% year-to-date.
For more on Goldman’s bearish long-term forecast, read here.
— John Melloy, Pia Singh
Stocks open lower on Monday
Dallas Fed President Logan supports “gradual” interest rate cuts
Federal Reserve Bank of Dallas President Lorie Logan speaks at a National Association for Business Economics conference in Dallas, Texas, US, October 9, 2023.
Ann Saphir | Reuters
Dallas Federal Reserve President Lori Logan said Monday that she supports the current move to cut interest rates, but warned that a patient approach will be needed.
“If the economy develops as I currently expect, a strategy of gradually reducing the policy rate to a more normal or neutral level can help manage risks and achieve our objectives,” Logan said in a speech in New York . “However, any number of shocks could affect what that path to normal looks like, how quickly policy should move and where interest rates should be set. In my view, the [Federal Open Market Committee] he should remain nimble and willing to adapt if necessary.”
Along with her views on interest rates, Logan also supported reducing the Fed’s bond portfolio and said the two actions – easing interest rates while shrinking the balance sheet – were not at odds with “normalizing” monetary policy.
— Jeff Cox
Boeing, Humana among stocks making premarket moves
Some stocks make big moves in premarket trading:
- Boeing – Shares added 3.3% after the plane maker and its engineers union reached a new contract proposal that could end a month-long strike. A vote to ratify the proposal, which includes a 35 percent wage increase, is expected on Wednesday.
- Warby Parker – The eyewear retailer advanced nearly 5% after Goldman Sachs upgraded it to buy from neutral. Goldman said the company could outperform as fundamentals improve and margins see stronger growth.
- Humana, Cigna – Shares of both companies moved in opposite directions after Bloomberg, citing people familiar with the matter, reported that Cigna continued merger discussions with Humana. Talks are at an early stage, according to Bloomberg’s sources. Humana gained more than 4% while Cigna declined similarly.
Read here for the full list.
— Sean Conlon
Bernstein cuts price target for ASML, still sees 13% upside.
China’s normalization of demand could pose a near-term threat ASMLaccording to Bernstein.
The firm reiterated its outperform rating on the Dutch semiconductor stock, but cut its price target to $815 from $1,052. This revised price forecast is still about 13% higher than where ASML shares closed on Friday.
ASML’s stock has slipped 4% this year. Analyst Sara Russo believes investors have punished the stock unfairly.
ASML YTD chart
“The recent downgrade has been sharper relative to history, with ASML now trading at a threshold multiple of 1SD below the historical average, which we believe is overpriced,” he said. “ASML now trades at a discount to SOX, which we don’t see as merit given our belief that the structural story remains strong.”
While the company recently lowered its guidance for 2025 after a “transitional” 2024, Russo wrote that normalizing demand for China could mean investors should still “exercise patience until it becomes clearer cyclical recovery’.
“We had concerns about the risk of an even more protracted recovery in final demand leading to delays in capacity expansion, and that’s what we now look like we’re getting to in 2025,” he wrote.
On the bright side, Russo said she models a recovery for the stock in 2026.
— Lisa Kailai Hahn
Loop Capital upgrades JD stock to buy from hold
Loop Capital sees JD.com as a potential beneficiary of China’s recently announced stimulus initiatives.
The firm upgraded shares of the Chinese e-commerce retailer to buy from hold. Analyst Rob Sanderson raised his price target to $49 from $48, representing an upside of about 23%.
JD will report its third-quarter earnings results after the market closes on Oct. 30. Sanderson believes the company will likely exceed all of its current estimates.
“We are comfortable with revenue growth accelerating to 4% for Q3, driven by a strong September, with government-sponsored trade discounts boosting home appliance and consumer electronics sales. We expect a built-in better result for the 3rd quarter, “he wrote.
Sanderson also said his outlook at the top would prove conservative and highlighted JD management’s efforts to save costs through a slowdown in consumer spending. Meanwhile, the analyst also cited the Chinese central bank’s new stimulus efforts as an additional catalyst.
“We think JD would likely be a big beneficiary of the consumption stimulus,” he wrote.
JD shares are up 38% in 2024.
JD YTD chart
Barclays Downgrades UPS to Short-Term and Long-Term Headwinds
Igor Golovnov | Lightrocket | Getty Images
Barclays is prohibitive UPS.
The bank downgraded the shipping stock to underweight from equal weight. Analyst Brandon Oglenski left his price target unchanged at $120, implying that UPS shares could fall 12% from Friday’s close.
In the near term, Oglenski sees risks to UPS’s earnings that could mean the company is unable to meet management’s “relatively aggressive guidance for the second half of 2024.” In the long term, Amazon is a significant threat, as it still accounts for 12% of UPS’s total revenue.
“With the e-commerce provider operating a delivery network that rivals UPS’s size, we see outsourcing risk remaining high over the next few years, especially as UPS tries to squeeze higher prices out of the business,” the analyst wrote.
Oglenski added that since UPS raised its dividend significantly during the pandemic, he sees a “limited capacity” for dividend growth in the coming years. UPS’s valuation could be further constrained by growing competitive pressures from non-union FedEx.
“Investors should consider future competition from a merged non-union FedEx US Express and Ground business that potentially rivals or exceeds UPS’s productivity, which will be limited on a relative basis by union labor rules as well as wages and benefits under contract,” the analyst wrote.
UPS shares are down nearly 14% year-to-date.
UPS YTD chart
European markets open slightly lower
European markets opened slightly lower on Monday.
The pan-European Stoxx 600 traded down 0.1% shortly after the open, with most sectors in negative territory.
— Sam Meredith
Where the profits are
Of the 14 percent of S&P 500 companies that have posted results so far this earnings season, 79 percent of them have beaten expectations as of Friday’s close, according to FactSet.
But companies are picking up the pace this week. About a fifth of S&P 500 companies are set to report results Monday through Friday.
— Sarah Minn
Leading indicators are expected on Monday
The top indicators for the month of September are expected on Monday at 10 am. ET.
Economists polled by FactSet expected it to have declined 0.3% last month, from a 0.2% drop in the previous reading.
— Sarah Minn
Equity futures contracts open low
Stock futures opened little changed on Sunday night.
Dow Jones Industrial Average futures rose 36 points, or 0.08%. S&P 500 and Nasdaq 100 futures rose 0.09 percent and 0.08 percent, respectively.
— Sarah Minn