Is the Era of Soaring U.S. Stocks Over?

Recently, strategists from the well-known Wall Street investment bank Goldman Sachs stated that the annualized nominal return rate of the S&P 500 index over the next decade is expected to be only 3%. In comparison, the annualized nominal return rate over the past 10 years was as high as 13%, while the long-term average level is 11%. The S&P 500 index return rate will have about a 72% probability of underperforming U.S. Treasury bonds.

At the same time, David Rosenberg, a top U.S. economist and President of Rosenberg Research, also issued a warning that the U.S. stock market could crash. He said, "These days, observing the market is like watching a clown blow up balloons, knowing that a sharp drop is inevitable. When this super bubble bursts, it will be spectacular."

On Monday local time, the three major U.S. stock indexes fluctuated, with the Dow Jones Industrial Average down 0.80%; the S&P 500 index down 0.18%; and the Nasdaq up 0.27%. In terms of individual stocks, Nvidia rose more than 4%, with its stock price hitting a new historical high, and its total market value exceeding 3.5 trillion U.S. dollars, approaching Apple. Microsoft, Amazon, and Google rose slightly. Ford Motor Company fell nearly 2%, Texas Instruments fell more than 1%, and Tesla fell 0.84%.

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JPMorgan strategists, citing the bank's own indicators, said that demand for the U.S. dollar surged last week, and this buying may continue.

Is the era of soaring U.S. stocks over?

This year, the U.S. stock market has continued to strengthen, with the Nasdaq up more than 23%, and the S&P 500 index also up nearly 23%. However, this rebound is mainly concentrated on a few large technology stocks.

Goldman Sachs strategists said that as investors turn to other assets, including bonds, for better returns, U.S. stocks are unlikely to maintain the above-average performance of the past decade. Goldman Sachs strategists, including David Kostin, analyzed that the annualized nominal return rate of the S&P 500 index over the next decade is expected to be only 3%, a significant drop compared to recent performance. Over the past decade, the annualized nominal return rate of the S&P 500 index was 13%, with the long-term average level at 11%.

Goldman Sachs strategists also believe that there is about a 72% probability that the benchmark index return rate will lag behind U.S. Treasury bonds, and a 33% probability that it will lag behind inflation by the end of 2034. Goldman Sachs strategists wrote in the latest report: "Investors should prepare for stock returns over the next 10 years to be close to the lower end of their typical performance distribution."After the global financial crisis erupted, the U.S. stock market experienced a rebound, initially driven by interest rates close to zero, and later by bets on the resilience of economic growth. According to compiled data, the S&P 500 is expected to outperform other regions globally in 8 out of the last 10 years. However, the index's 23% gain this year is heavily concentrated in a few of the largest technology stocks. Goldman Sachs strategists have indicated that in the next decade, the equal-weighted S&P 500 will outperform the market capitalization-weighted benchmark, suggesting a potential shift in market dynamics.

For investors accustomed to the strong returns of recent years, Goldman Sachs' forecast may serve as a reminder of the cyclical nature of financial markets. This suggests a need for diversification and possibly a reassessment of investment strategies to achieve long-term financial goals.

Surveys show that investors anticipate the U.S. stock market rebound to extend into the final stages of 2024. It is believed that the strength of U.S. corporate earnings is more critical to stock market performance.

As the U.S. stock market "soars," many Wall Street heavyweights have been warning of a potential bubble in the stock market. Some experts suggest that investors concerned about such a scenario should focus on "key sectors" and add some stocks with "insurance" qualities to their portfolios.

David Rosenberg, an American economist and President of Rosenberg Research, recently stated, "These days, observing the market is like watching a clown blow up balloons, knowing full well that the (inevitable crash) outcome is unavoidable. When this super bubble bursts, it will be spectacular."

David Rosenberg pointed out that investors need to proceed with caution and avoid following the "herd mentality," referring to the frenzy over large-cap technology stocks. In his view, investors should focus on stocks with strong business models, robust growth, and reasonable prices, and add some "insurance" to their portfolios. David Rosenberg stated that investors should direct their investments towards things that people will always need in the future. He specifically advised investors to pay attention to healthcare and consumer staples stocks.

David Rosenberg also said that utility stocks look promising. Other forecasters warn that due to the growing demand for electricity and data centers driven by the artificial intelligence boom, utility companies will face significant upside potential. David Rosenberg stated, "As we have long said, utility stocks are close to 'no-brainer' because of their income attributes, and due to strong and long-term U.S. power demand, which enhances earnings visibility, utility stocks have been rerated as 'defensive growth.'" Additionally, David Rosenberg pointed out that, considering the intensification of global geopolitical tensions, aerospace and defense stocks may also be worth buying.

David Rosenberg specifically advised that investors should consider adding a "dose of insurance" to their portfolios, referring to gold and government bonds. He wrote, "The beauty of gold is that it is not a debt that central banks can easily write off, nor is it a currency that can be printed at the behest of the government. I am also bullish on the U.S. Treasury market because it has the highest yield of almost all major industrial nations and has strong liquidity."

JPMorgan: Recent Surge in Dollar Demand

Recently, JPMorgan strategists, citing the bank's proprietary indicators, stated that there was a surge in dollar demand last week, and this buying could continue.JPMorgan Chase has noted that the most popular trade is to buy dollars in the options market while selling Singapore dollars and Australian dollars. Strategists at JPMorgan, including Patrick Locke, have stated that there is also strong demand for buying dollars against the Mexican peso and the euro.

After experiencing the worst quarter for the dollar's trade-weighted index since the end of last year, a significant amount of buying has shifted the dollar position from short to neutral. The strategists wrote, "Although investors have been buying dollars since October, overall, the dollar position is still largely neutral to a considerable extent."

According to data from the U.S. Commodity Futures Trading Commission, speculative traders have almost completely closed the net short dollar positions established in July.

JPMorgan also pointed out that there has been a warming trend in selling euros, with some bearish options targeting a fall in the euro against the dollar to parity. The risk of the euro falling to parity against the dollar is increasing. JPMorgan strategists said, "We believe that euro/dollar short positions will continue to expand."