Latest news with #DavidKostin
Yahoo
4 days ago
- Business
- Yahoo
Vanguard says buy more bonds than stocks over the next decade. Top Wall Street banks are already on board.
Vanguard suggests a 70% bond and 30% stock portfolio for the next decade. The portfolio recommendation is a bit shocking at first glance. But it essentially makes the same point that top banks did last year: Stocks are uber expensive. Vanguard's ideal portfolio for the next 10 years looks pretty shocking at first glance. As of earlier this week, the asset manager recommends having 70% of your money in bonds and 30% in stocks, a much more conservative approach than the classic portfolio of 60% stocks and 40% bonds. But the firm's downbeat long-term outlook for stocks is essentially another iteration of the message top Wall Street banks have been sending since last year, and a question of simple math: Stocks are expensive, and are therefore likely to underperform government bonds over the next decade. Goldman Sachs' David Kostin made waves last October when he made a similar point in a client note. "The S&P 500 has roughly a 72% probability of trailing bonds and a 33% likelihood of lagging inflation through 2034," Kostin wrote at the time. And Morgan Stanley's Mike Wilson told Business Insider in December that he sees horizontal average returns for the benchmark stock index over the next decade. "That is a very common view, that given where valuations are today, over the next 10 years, the returns from point A to point B will be basically flat-ish, and on a real basis, maybe negative," he said. Valuations are key and are the crux of Wilson, Kostin, and Vanguard's dreary outlooks. Historically, when the S&P 500's Shiller price-to-earnings ratio has been in the high 30s, like it is now, annualized 10-year returns have been poor and potentially even negative. Here's a chart that Invesco put out in March showing the relationship going back to 1881. The dark blue line shows the Shiller PE ratio — which measures current stock prices versus a 10-year rolling average of earnings — and the pink line, which is inverted, shows the S&P 500's annualized returns over the previous 10 years. Below is another look at the relationship since 1983. Over that time, starting valuations have been able to explain 78% of the S&P 500's returns during the following decade. In other words, valuations matter a ton when it comes to long-term returns. When the Shiller PE ratio has been around 37 in the past — as it is now and was in March — following 10-year annualized returns have been anywhere from negative to a few percent per year. In the context of bond yields, the outlook for stocks becomes even dimmer. Vanguard says bonds should deliver 4-5% average returns over the next 10 years. Risk-free 10-year Treasurys currently offer 4.2% yields. So, why would you put your money into risky stocks if you're going to get the same, or even worse, returns as you'd get in bonds guaranteed by the government? High valuations can present a risk for investors because they reflect lofty investor expectations for future earnings perfromance. If that performance doesn't live up to the hype, things can go downhill. And if it does meet expectations, investors had already priced that upside in. Of course, just because high valuations have been a harbinger of bleak returns in the past doesn't necessarily mean that it will be the case this time. Maybe AI will really be a game changer. Plus, any pullback in valuations in the years ahead could present a better opportunity for forward long-term returns. But there's a long and reliable track record between stock performance and starting valuations, so ignore it at you're own risk. Again, though, this outlook Vanguard and the banks have expressed is over a 10-year period — a very specific timeline that may have no significant implications for you if you plan to simply hold your stocks for multiple decades to come. Read the original article on Business Insider
Business Insider
5 days ago
- Business
- Business Insider
Vanguard says buy more bonds than stocks over the next decade. Top Wall Street banks are already on board.
Vanguard's ideal portfolio for the next 10 years looks pretty shocking at first glance. As of earlier this week, the asset manager recommends having 70% of your money in bonds and 30% in stocks, a much more conservative approach than the classic portfolio of 60% stocks and 40% bonds. But the firm's downbeat long-term outlook for stocks is essentially another iteration of the message top Wall Street banks have been sending since last year, and a question of simple math: Stocks are expensive, and are therefore likely to underperform government bonds over the next decade. Goldman Sachs' David Kostin made waves last October when he made a similar point in a client note. "The S&P 500 has roughly a 72% probability of trailing bonds and a 33% likelihood of lagging inflation through 2034," Kostin wrote at the time. And Morgan Stanley's Mike Wilson told Business Insider in December that he sees horizontal average returns for the benchmark stock index over the next decade. "That is a very common view, that given where valuations are today, over the next 10 years, the returns from point A to point B will be basically flat-ish, and on a real basis, maybe negative," he said. Valuations are key and are the crux of Wilson, Kostin, and Vanguard's dreary outlooks. Historically, when the S&P 500's Shiller price-to-earnings ratio has been in the high 30s, like it is now, annualized 10-year returns have been poor and potentially even negative. Here's a chart that Invesco put out in March showing the relationship going back to 1881. The dark blue line shows the Shiller PE ratio — which measures current stock prices versus a 10-year rolling average of earnings — and the pink line, which is inverted, shows the S&P 500's annualized returns over the previous 10 years. Invesco Below is another look at the relationship since 1983. Over that time, starting valuations have been able to explain 78% of the S&P 500's returns during the following decade. In other words, valuations matter a ton when it comes to long-term returns. When the Shiller PE ratio has been around 37 in the past — as it is now and was in March — following 10-year annualized returns have been anywhere from negative to a few percent per year. Invesco In the context of bond yields, the outlook for stocks becomes even dimmer. Vanguard says bonds should deliver 4-5% average returns over the next 10 years. Risk-free 10-year Treasurys currently offer 4.2% yields. So, why would you put your money into risky stocks if you're going to get the same, or even worse, returns as you'd get in bonds guaranteed by the government? High valuations can present a risk for investors because they reflect lofty investor expectations for future earnings perfromance. If that performance doesn't live up to the hype, things can go downhill. And if it does meet expectations, investors had already priced that upside in. Of course, just because high valuations have been a harbinger of bleak returns in the past doesn't necessarily mean that it will be the case this time. Maybe AI will really be a game changer. Plus, any pullback in valuations in the years ahead could present a better opportunity for forward long-term returns. But there's a long and reliable track record between stock performance and starting valuations, so ignore it at you're own risk. Again, though, this outlook Vanguard and the banks have expressed is over a 10-year period — a very specific timeline that may have no significant implications for you if you plan to simply hold your stocks for multiple decades to come.
Bloomberg
7 days ago
- Business
- Bloomberg
Beware Wall Street's Growing Discord on Earnings
With all the uncertainty around big policy questions that directly affect companies, notably tariffs and immigration, forecasting has become thorny for Wall Street analysts. 'In my career, I don't recall so much uncertainty in such a short period of time,' veteran analyst Ed Yardeni told Bloomberg News recently. David Kostin, Goldman Sachs Group Inc.'s chief US equity strategist, cautioned clients that 'the shifting tariff landscape creates large uncertainty around our earnings forecasts.' Indeed, analysts increasingly disagree about what that uncertainty means for corporate profits, as I pointed out in a recent column. While the average earnings forecast for the S&P 500 Index over the next year has risen since the Trump administration's tariff rollout on April 2, the variability around that average has widened, showing the difficulty of pinning down earnings.
CNBC
05-08-2025
- Business
- CNBC
Beating analysts' estimates isn't always good enough. What that means now
Companies are trouncing expectations this earnings season, but investors are mostly turning a deaf ear. The S & P 500 is on track for earnings growth of 9% in the second quarter versus the same period a year ago, more than double the 4% that was at the start at the end of June, according to a Friday report from Goldman Sachs. Even so, the response has been middling, at best. Goldman Sachs found that the median stock whose earnings topped expectations has only outperformed the S & P 500 by 0.55 percentage point, below the historical median of 1.01 percentage points. Meanwhile, earnings disappointments have been punished more severely than in the past. The investment bank found that companies that missed earnings expectations underperformed by roughly twice the historical precedent. Shares of Amazon , for example, dropped more than 9% in two days after the online retailer reported second-quarter results that topped expectations but issued lackluster current-quarter operating income guidance. Other examples include On Semiconductor , which dropped more than 15% Monday even after posting solid results. Paltry reward "The reward for earnings beats has been paltry," Goldman's chief U.S. equity strategist David Kostin wrote. There are several potential reasons for the muted response to strong earnings. For one, much of the total index gain comes from the Magnificent Seven stocks , which as a group are responsible for year-over-year earnings growth of 26% in the second quarter. The rest of the S & P 500? Just 4%. For another, Kostin noted that analysts set an "unrealistically" low bar coming into the second quarter earnings season, fearful of the impact tariffs would have on businesses' ability to boost profits and plan for the future. Instead, a review of earnings calls thus far suggests management confidence in its ability to navigate levies, Kostin said. Still, there are those on Wall Street who worry that repeated tariff extensions will continue to weigh on the market and the economic outlook. For her part, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, said a review of second quarter earnings calls is making her cautious. "In the Wednesday press conference," after last week's Federal Reserve policy meeting, "the phrase that Chairman Powell used that really resonated with us, is that we have a 'long way to go' in understanding what the impacts of tariffs will be on inflation," Calvasina wrote in a note. "What we've been reading during earnings has also led us to believe that we have a long way to go to understanding how the recent changes in trade policy will impact demand and 2026 outlooks," she added.
CNBC
05-08-2025
- Business
- CNBC
Goldman Sachs' David Kostin: Large percentage topline index return is coming from big tech
David Kostin, Goldman Sachs chief U.S. equity strategist, joins CNBC's 'Squawk on the Street' to discuss reactions to this season's earnings, why outperformance has been largely concentrated among big tech, and much more.
