Goldman Sachs expects the returns of the S&P 500 index to be relatively moderate over the next decade, indicating a shift compared to the strong performance investors have experienced in recent years. According to a recent investor report, the firm predicts an average annualized total return of 6.5% for the S&P 500 index over the next ten years. The analysis also outlines various possible outcomes, with a low of 3% and up to 10% in more optimistic scenarios.

The investment bank's forecast is based on three main factors: 6% annual growth in earnings per share, a 1% annual decline in valuation, and an average dividend yield of 1.4%. Combined, these factors form the basis of Goldman Sachs' core prediction.

When considered in a historical context, the baseline return of 6.5% would place it at the 27th percentile of the S&P 500 index's ten-year returns since 1900. Taking into account the average inflation rate expected by Goldman Sachs analysts at 2.2%, the anticipated real return drops to approximately 4%, positioning it at the 33rd percentile in historical data.

This outlook suggests that while the market is still expected to deliver substantial returns, investors should prepare for a period of more stable gains compared to the remarkable growth of the past decade.