Is an End to the S&P 500s Record Rally in Sight?

ImageMarket headwinds The S&P 500 is on pace to rack up back-to-back annual gains of at least 20 percent, a once-in-a-generation rally that has turbocharged investors’ portfolios and bolstered Wall Street profits.But some analysts are warning that the era is coming to an end, regardless of who wins the White House.Skeptics point to numerous challenges:Sputtering global growth, which the I.M.F.is likely to delve into in its World Economic Outlook report due out on Tuesday;Geopolitical risks, with analysts worried that a potential Israeli attack on Iran could drive up energy prices and reignite inflation;Staggering national debt — especially when twinned with high interest rates— which is an issue that isn’t gaining much attention on the campaign trail but is weighing on investors;Inflated stock valuations, which will make it harder for companies — including the highly valued tech giants that will report quarterly results soon — to hit higher earnings-per-share goals.How bad could it get? Goldman Sachs analysts have forecast annualized nominal returns of 3 percent for the S&P 500 over the next decade, or just 1 percent when inflation is taken into account.

By contrast, the benchmark index notched 13 percent gains over the past decade.“Investors should be prepared for equity returns during the next decade that are toward the lower end of their typical performance distribution,” Goldman analysts wrote in a research report published this weekend.Lower growth in the markets could scramble the scene in Washington.Typically, the combination of a growing economy and strong stock market — and the United States is seeing both — bodes well for the incumbent party in an election year.

But working-class voters aren’t seeing the upside of the markets.That said, more than half of Americans own stocks, with a vast number relying on gains to shore up their retirement finances.Could politics further dent those returns? Wall Street is divided on the id...