Goldman Sachs Sees Global Stocks Rising Just 5% to 9%

Global stocks may keep climbing after a steep run over the past year, but investors should lower their return expectations, a Wall Street strategist warned.

“Solid Gains Already Booked”: Goldman Sachs Forecasts 5% to 9% Advance

Peter Oppenheimer, chief global equity strategist at Goldman Sachs, said in an interview with “Opening Bid” that global equity gains will slow over the next 12 months, Yahoo Finance reported on the 5th.

“The S&P 500 and equity markets around the world have delivered phenomenal returns over the past year and so far this year,” Oppenheimer said. “We’ve already had a lot of good returns, so we expect lower returns going forward.”

He projected that returns in most major markets will land in the mid- to high-single digits over the next 12 months, or roughly 5% to 9%. That would fall short of the gains each region posted over the past year.

He is not calling for a downturn, however. Assuming economic growth continues, Oppenheimer described single-digit gains as a “reasonably decent” outcome. The S&P 500 is up about 12% so far this year.

Not Just the U.S.: Japan’s 10-Year Yield Tops 3% for First Time Since 1996

One of the biggest constraints on further equity gains is government bond yields. A simultaneous selloff in sovereign debt across major economies has pushed long-term yields sharply higher. Bond prices and yields move in opposite directions.

The U.S. 10-year Treasury yield recently climbed to its highest level since 2023. The 30-year yield also approached a roughly 20-year high.

The rise in yields was not confined to the United States. Japan’s 10-year government bond yield topped 3% for the first time since 1996. Britain’s 10-year yield hit its highest level since mid-2007, and Germany’s 10-year yield rose to its highest since 2011, when the European debt crisis was at its peak.

Higher government bond yields make fixed income relatively more attractive while weighing on equities. Corporate funding costs rise, and the discount rate applied to future corporate earnings increases, making it harder to justify the elevated valuations of growth stocks in particular.

Matt Maley, a strategist at Miller Tabak, warned that while the stock market has been able to shrug off these moves so far this year, higher rates, as seen in the past, appear to have no impact on equities until they suddenly do.

Oil Tops $90: Growth Stocks May Lead Further Weakness

Crude prices are adding to the pressure. International oil prices climbed above $90 a barrel as geopolitical tensions surrounding Iran and concerns over the Strait of Hormuz intensified.

Rising oil prices do not stop at energy costs. They push up expenses in transportation, agriculture and manufacturing, adding renewed upward pressure on overall inflation. Prices of some commodities, including corn and sugar, have also surged recently.

If inflation reaccelerates, central banks are more likely to keep rates elevated for longer than expected. With sovereign yields already rising quickly, a return of inflation would deliver a double blow to equities.

Tom Essaye, founder of Sevens Report Research, said rising oil prices are driving government bond yields higher and those higher yields are pressuring stocks. He expects market weakness to persist, led by growth and cyclical shares, until that dynamic eases.

That is why Goldman Sachs is telling investors to temper their return expectations even as it leaves room for further gains. Equities can climb further if the economy keeps growing, but the burden of yields and oil prices makes a repeat of the past year’s steep rally hard to count on.