As the most mainstream investment banks on Wall Street, JPMorgan Chase and Goldman Sachs have provided contrasting views on the long-term prospects of the US stock market over the next decade.

The differing conclusions lie in JPMorgan Chase's belief that US companies, especially large corporations, are "very good at increasing profit margins," combined with advancements in technology and AI, as well as the steady growth of developed economies providing a "boosting" effect.

J.P. Morgan Asset Management, with assets under management totaling as high as $3.5 trillion, recently released the annual blockbuster report, "2025 Long-Term Capital Market Assumptions (LTCMA)," offering a more optimistic outlook.

The report highlights the strong foundation of the traditional 60/40 stock-bond allocation in investment portfolios, while also emphasizing the opportunities to enhance returns through active management and alternative investments, suggesting that the US stock market will outperform cash and achieve robust returns after adjusting for inflation.

J.P. Morgan foresees an annualized return of 6.7% for US large cap stocks over the next 10 to 15 years, far more optimistic than the Goldman Sachs research report.

The report states that the expected annual return over the next 10 to 15 years for a traditional "60/40 stock-bond investment portfolio" calculated in US dollars is projected to be 6.4%, slightly lower than last year but still above the long-term average.

This is mainly due to the improvement in long-term growth prospects driven by strong capital investment, advancements in artificial intelligence and automation, as well as the proactive fiscal policy. It is also possible to improve the prospects of return on investment by adopting active management and incorporating alternative assets.

In the category of stock assets, although overvaluation will drag down returns by 1.8 percentage points during the investment period, the annualized return rate of large cap stocks in the USA is expected to be 6.7%, only slightly lower than last year's 7%. The report states, "The high-quality characteristics of the USA market and the combination of various sectors (including a robust technology industry) may result in the prices of USA stocks being higher than other similar stocks."

In contrast, a recent research report from Goldman Sachs warned that the large cap s&p 500 index, which has experienced a significant rise in the past decade, is coming to an end. The nominal total annual return rate in the next decade is expected to be slightly above 3%, far below the 13% of the previous decade; by the end of 2034, there is about a 72% probability that the return rate of the s&p 500 index will lag behind USA bonds, with a 33% chance of underperforming inflation.

However, a research report from JPMorgan Asset Management also acknowledges that in the next 10 to 15 years, the expected annualized return rate of global stocks, calculated in USD, is 7.1%, higher than the performance of USA stocks. Non-USA markets will provide more attractive cyclical starting points and benefit from currency appreciation. Additionally, the expected return rate of emerging market stocks, calculated in USD, is even higher at 7.2%.

Monica Issar, the Global Head of Multi-Asset and Portfolio Solutions at JPMorgan Wealth Management, openly admits that the high valuation of USA stocks will eventually need to decrease (i.e., multiple contraction), although the solid economic and corporate fundamentals will offset this:

"Over the next 10 years, multiple contraction will be offset by healthier macro (economic) and corporate fundamentals, providing a more solid opportunity for investors to allocate capital."

In the fixed income asset category, the above research report suggests that the expected annualized return rate of US mid-term government bonds in the next 10 to 15 years is 3.8%, while the expected return rate of long-term government bonds is 5.2%. Despite benefiting from higher yields, both will fall short of the performance of USA large cap stocks.

At the same time, the expected annualized return rate for USA investment-grade crediting is 5%. Due to the expectations of economic growth and increased creditworthiness, the spread between the yield of the risk-free benchmark USA bonds will narrow. The expected return rate for USA high yield crediting is 6.1%, with a fair value spread of 475 basis points, reflecting the drag on return rates toward normalization.

Among the alternative assets expected to enhance portfolio return rates:

Over the next 10 to 15 years, the expected annualized return of private equity is 9.9%, reflecting a slight increase due to a more favorable exit environment, along with increased growth opportunities in the technology and artificial intelligence sectors.

Driven by attractive entry points and higher yield prospects, the expected return rate for core real estate in the USA is 8.1%, higher than last year's 7.5%. The expected return rate for core real estate in Europe is slightly lower at 7.6%.

The expected return rate for global core infrastructure is 6.3%, reflecting stable returns and the core attributes of services provided by this asset class.

The expected return rate for the csi commodity equity index basket remains at 3.8%. Energy transition and geopolitical risks will impact the return prospects of these assets.

Analysis: Despite another optimistic outlook by JPMorgan, it is still below the average annualized growth rate since the establishment of the S&P 500. Wall Street is shrouded in uncertainty.

Some analysts point out that JPMorgan's forecast for the S&P large cap return rate in the next ten years is still below the long-term average annualized growth rate of 11% since the index's inception in 1957 until the end of 2023. Following the Fed's rate cut, major Wall Street banks have differing forecasts for the US stock market's direction, indicating a broader uncertainty that persists.

John Bilton, Global Multi-Asset Strategy Head of JPMorgan Asset Management, stated:

Our long-term capital market assumptions provide a roadmap to address the complexity of today's markets. This year's research results emphasize the value of active management and alternative asset classes in generating alpha returns and diversification (asset allocation).

We encourage investors to invest in assets that can withstand inflation shocks and fiscal risks, while bonds remain crucial for diversification.

Monica Issar mentioned above:

This year's report emphasizes the importance of building goal-oriented investment portfolios that can withstand market fluctuations and seize growth opportunities.

With significant opportunities emerging in infrastructure and other tangible asset sectors, investors can leverage these areas to achieve stable income and hedge against inflation.

David Kelly, Chief Global Strategist at JPMorgan Asset Management, pointed out:

The global economy is entering a new era characterized by increased fiscal spending, increased capital investments, and stronger economic growth. The overall outlook remains optimistic as investment levels are recovering and interest rates are normalizing.

Although inflation is expected to be slightly higher than pre-pandemic levels, the starting point of inflation is lower than last year's forecast, leading to a slight decrease in long-term inflation assumptions.

He also mentioned that part of the optimism of the JPMorgan team comes from the expectation that AI will bring higher corporate revenue growth and higher profit margins, especially for large companies that have invested heavily in this cutting-edge technology.

"Overall, we believe that U.S. companies are extreme - they act quickly and are very good at increasing profits."

Other key conclusions of this report include:

Inflation and interest rates: It is expected that inflation in the next 10 to 15 years will be slightly higher than pre-Covid-19 levels. Higher policy rates are expected to enhance the strong returns of bonds, with the United States' neutral cash rate forecast rising from 2.5% last year to 2.8%.

Opportunities in the private market: There are rare opportunities in the global real estate market, with the expected core real estate return rate in the U.S. soaring to 8.1%. Despite higher financing costs, private equity and venture capital are expected to benefit from increased capital spending and adoption of technology.

Optimistic growth forecasts: Economic growth forecasts in developed markets have been slightly revised upwards, with the U.S. expected to benefit from strong immigration and AI-driven productivity growth. Strong capital investments, technological progress, and fiscal initiatives will further boost economic growth.

Impact of AI: AI is expected to play a crucial role in improving productivity and economic growth. The report predicts that AI will bring an annual growth of 20 basis points to developed markets, considering the transformative potential of this technology, this forecast may be conservative. This trend is expected to support higher corporate revenue growth and profit margins, especially for large U.S. companies.

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