The (gains) party on Wall Street could be winding down

In the decade ahead, returns from the S&P 500 aren’t expected to remain as high as they were in the past 10 years, according to two separate notes from Goldman Sachs and Deutsche Bank.

Where the market stands now: With a two-year bull market under its belt, the S&P recently delivered its best 9M performance in 27 years, rising c.21% during the January-September period, according to market data. Historically speaking, in the years that the index has delivered double-digit increases during the first three quarters of a year, it typically records a positive fourth quarter as well.

The rally could be winding down and US equities are likely looking at a much leaner decade ahead, Goldman Sachs strategists including David Kostin said in a note, according to Bloomberg. The investment bank sees S&P 500’s annualized nominal returns clocking in at just 3% over the next 10 years, well below the long-term average of 11% and a far cry from the 13% recorded in the last decade.

Bonds are the new black: The analysis suggests that equities will take a backseat as assets like bonds become more appealing. Goldman sees a 72% chance that the S&P 500 will underperform treasuries, and a 33% likelihood that it will lag behind inflation through to 2034, meaning investors should brace for lower-end stock market returns.

Local + global conditions make it “difficult to get further upside”: It’s unlikely that the S&P 500 will continue to register the same levels of return growth, Deutsche Bank analysts also said.

“With a soft economic landing increasingly priced in, it feels more difficult to get further upside growth surprises from here,” the analysts said, particularly when considering potential external shocks from geopolitical turmoil.

Big tech is delaying the slide, but won’t save the day: While the S&P 500 has bounced back by 23% this year, the boost was largely driven by a few tech giants. Goldman’s team anticipates broader returns in the years to come, predicting that the equal-weighted S&P 500 will outperform the market cap-weighted benchmark. Even if the tech-heavy rally continues, average returns won’t top 5% — remaining below the historical norm.

ALSO WORTH NOTING-

Europe wants its very own SEC: The European Securities and Markets Authority (Esma) is making a bid to become the EU’s equivalent of the US Securities and Exchange Commission (SEC), with Esma seeing the need for greater centralization in supervising the bloc’s capital markets, President Verena Ross tells the Financial Times. The Paris-based watchdog aims to tighten its grip on Europe’s stock exchanges and financial infrastructure, seeking to revitalize the region's markets and boost investor confidence amid rising demand for capital.

Not everyone’s on board: Smaller EU member states like Luxembourg and Ireland are pushing back, worried the plan could undermine their local markets which rely more on localized authority. Meanwhile, bigger players like France and Germany are all for the move, seeing the benefits of syncing regulations across borders. “Let’s evaluate in which areas it would make sense to move a step further to central EU supervision,” Ross added.

MARKETS THIS MORNING-

US futures are a sea of red this morning, extending yesterday’s downturn and dragging down early trading in Asia-Pacific markets. Japan’s benchmark Nikkei is firmly in the red this morning, while Hong Kong’s HSI is timidly in the green.

THE CLOSING BELL-

The DFM rose 0.2% yesterday on turnover of AED 232.2 mn. The index is up 10.3% YTD.

In the green: National International Holding Company (+11.4%), Emirates REIT (CEIC) (+10.4%) and Emirates Reem Investments Company (+7.1%).

In the red: Takaful Emarat (-8.7%), BHM Capital Financial Services (-4.4%) and Al Mazaya Holding Company (-2.6%).

Over on the ADX, the index fell 0.1% on turnover of AED 1.13 bn. Meanwhile Nasdaq Dubai closed up 0.1%.

CORPORATE ACTIONS-

Takaful Emarat’s capital restructuring: Ins. company Takaful Emarat reduced its capital to AED 25.6 mn by canceling 124.4 mn shares, according to a DFM disclosure (pdf). This will be followed by a capital increase of AED 185 mn once it obtains approvals from the Securities and Commodities Authority (SCA).

Background: This reduction is part of a capital restructuring plan the firm revealed in February, aimed at offsetting the AED 132 mn accumulated loss the company had incurred as of 31 December 2023.

DIFC-licensed financial services firm Al Khair Capital distributed dividends of USD 300 per share, delivering an annualized yield of 12%, for its healthcare fund ’s 2Q earnings, according to a press release.

UAE district cooling firm Tabreed tapped xCube as a liquidity provider for its shares on the DFM, the company said in a press release (pdf).