Lost Decade Ahead For Stocks With Only 3% Annual Returns?

We've been asked to comment on yesterday's grim forecast by economists at Goldman Sachs that the S&P 500 will produce annualized returns of only 3% (before accounting for inflation) over the next 10 years. They reckon that the range of possible outcomes includes -1% at the low end and +7% nominal returns at the high end.

In our opinion, even Goldman's optimistic scenario might not be optimistic enough. That's because we believe that the US economy is in a "Roaring 2020s" productivity growth boom with real GDP currently rising 3.0% y/y and inflation moderating to 2.0%. If the productivity growth boom continues through the end of the decade and into the 2030s, as we expect, the S&P 500's average annual return should at least match the 6%-7% achieved since the early 1990s (chart). It should be more like 11% including reinvested dividends.