Goldman Sachs has released a stock market forecast stretching to 2035, predicting just a 6.5% annual return for the S&P 500, driven by earnings growth over multiple expansion. They see opportunities in overlooked areas, with global stocks expected to return 7.7% annually through 2035.

Goldman’s forecast is based on steady 6% earnings growth, a mild valuation headwind, and a modest dividend yield. The next decade will reward businesses that grow consistently and deliver real results, rather than chasing euphoria.

The firm believes today’s P/E levels are unsustainable, with a fair-value price-to-earnings ratio of 21x by 2035 compared to the current 23x ratio. They predict a gradual pullback from current high valuations as structural tailwinds fade.

Goldman’s outlook factors in near-record high profit margins and a 4.5% 10-year Treasury yield, leading to a decade dominated by earnings growth rather than valuation expansion. Corporate America has seen strong earnings beats, supporting their thesis.

The best returns over the next decade are expected to come from Emerging Markets at +10.9%, Asia ex-Japan at +10.3%, and Japan at +8.2%. These regions benefit from robust GDP growth, structural reforms, and currency considerations that could boost returns.

Goldman sees currency and earnings power driving returns in Emerging Markets, with China and India leading EPS growth. Governance upgrades in regions like Korea and China, combined with potential currency shifts, create opportunities for investors.

Read more at Yahoo Finance: Goldman Sachs unveils stock market forecast through 2035