Goldman Sachs CEO David Solomon says don't expect stocks to keep delivering double-digit returns, because the boom won't last forever
Solomon also believes Goldman's stock is undervalued, and says cryptocurrencies like bitcoin and ether don't have any importance for him.
Matt Winkelmeyer/Getty Images
- Don't expect stocks to keep delivering the bumper returns of the past few years, Goldman Sachs' CEO said.
- Double-digit equity returns can't be expected to compound in perpetuity, David Solomon told CNBC Tuesday.
- While Solomon believes in fintech, cryptos like bitcoin or ether don't matter to him personally.
Investors should expect lower returns in stocks over the next couple of years, because the market's current bull run is bound to lose steam, Goldman Sachs CEO David Solomon said Tuesday.
A cocktail of coronavirus-related stimulus measures and consistent liquidity injections has driven stocks to keep hitting new highs, especially in the US, where the S&P 500 has logged 66 record highs so far this year. The benchmark stock index is up almost 27% in 2021, and its level has more than doubled since its pandemic bottom in March 2020.
"We would expect that we're not going to see the same rate of returns in equities and many other assets over the next few years that we've seen over the last couple of years," Solomon said on CNBC's "Squawk Box."
"I'm not a believer that double-digit equity returns compounding in perpetuity is something as an investor you should expect," Solomon said.
An "everything rally" in asset markets followed the rollout of a COVID-19 vaccine in November 2020, which has continued over the past year. On Tuesday, the S&P 500 notched its biggest gain since March, having tumbled last week after the detection of the new Omicron coronavirus variant and the Federal Reserve's likely shift to faster tapering.
The global market rebound has continued to march higher on hopes the Omicron variant won't prove as bad as initially feared. This boom is flowing into other hot asset classes like real estate, art, and cryptocurrencies.
But Solomon gave a word of caution about getting complacent about returns.
"I've been involved with a number of investment committees and charitable foundations, college boards. Certainly my mindset is the returns we've received over the last three to five years are different than what we should expect as we go forward," he said.
Goldman Sachs stock is up 51% so far this year. But Solomon, whose management efforts led the lender to blowout profits and a record stock price, said he still feels its shares are not valued highly enough.
"Like any other CEO, you know, I think that my company and my stock is underappreciated and undervalued," he said. "I think the earnings power of the traditional financial services sector is quite powerful, and we get very, very low multiple on those earnings."
As for his outlook on cryptocurrencies, Solomon said bitcoin or ether don't hold personal importance to him, and he doesn't own them. "It's really not something individually that's important to me," he said.
Still, he wants Goldman's clients to "do what they think they want to do" in crypto as a speculative investment. The bank announced it was setting up a cryptocurrency-trading desk in May this year.
However, he is more upbeat on the prospects for technology in the financial sector. "I'm a big believer in the digitization and the disruption that's occurring in the way financial services are delivered," he said.
"Bitcoin is really not the key thing," Solomon added. "The key thing is: 'How can blockchain or other technologies that are not developed yet accelerate the pace of the digitization of the way financial services are delivered?'"