David Kostin, a long-standing figure in financial media, has announced his retirement from Goldman Sachs. He last attracted major attention a year ago with his prediction of 3% annualised returns for the S&P 500 over the next decade, equating to just 1% in real terms.
This forecast has seen a challenging start, with the S&P 500 rising nearly 13% this year. However, repeating the past decade’s 13% annualised returns may prove difficult amid high valuations and de-globalisation.
Ben Snider Appointed New Chief
Ben Snider has been appointed as the new Chief US Equity Strategist at Goldman Sachs.
The market has ignored the long-term bearish view so far, with the S&P 500 pushing toward 5,700 for a 13% gain in 2025. This strong rally has occurred even as the core arguments about high valuations and slowing global growth remain. We are seeing the S&P 500’s forward price-to-earnings ratio sitting at a lofty 22, well above the historical average of 17.
With the market’s steady climb, the VIX has been hovering near a low of 14, suggesting a high degree of complacency among investors. Historically, we have seen that prolonged periods of such low volatility often precede a market shock, making this an opportune time to consider buying cheap protection. We believe buying out-of-the-money puts on major indices like the SPX or QQQ for October expiration could be a prudent hedge against any sudden reversals.
Federal Reserve Holds Rates Steady
Adding to the uncertainty, the Federal Reserve held rates steady yesterday but signaled a more hawkish stance, citing the latest CPI report which showed a slight uptick in inflation to 3.3%. This challenges the narrative that rate cuts are imminent and could put a ceiling on the equity market’s recent run. Traders should watch the Fed fund futures market, which has already priced out any chance of a 2025 rate cut following the announcement.
Even if the market doesn’t fall sharply, the combination of high valuations and a cautious Fed may limit further upside in the near term. This suggests a range-bound market, where strategies like selling covered calls against existing long positions can generate income. Selling call spreads is another way we are looking to capitalize on this potential sideways movement, especially on specific tech names ahead of Q3 earnings.
