4 charts Goldman Sachs is watching as it predicts an era of weak stock returns ahead

• The stock market is poised for a weak decade of returns.
• Goldman Sachs predicted annualized returns for the S&P 500 could drop to 3% over the next 10 years.
• Here are some data points the bank is watching as it eyes an end to a long hot streak for the S&P 500.

The stock market's benchmark index is poised for a decade of tepid returns, Goldman Sachs predicted this month.

The investment bank said it sees a decade of weak gains coming for the S&P 500, thanks to a confluence of factors, such as a weakening economy, high market concentration, and an unfavorable backdrop in Treasury yields.

Those headwinds could lead the benchmark index to return just 3% in nominal annualized returns for the next 10 years, strategists said, down from the S&P 500's average 13% annualized return over the last decade.

Here are four charts the bank is watching as it sees the S&P 500's golden era for stocks winding down.

1. Only a few S&P 500 companies are sustaining sales growth

The percentage of unique S&P 500 firms that have maintained high sales growth is small.

The share of companies that maintained 10% or higher sales growth for 10 years is 11%, while the share of companies that maintained 20% or higher sales growth for 10 years is 3%, according to the firm's analysis of corporate earnings dating back to 1985.

2. S&P 500 market concentration is at its highest levels in a century

The largest stock in the S&P 500 is has a market cap over 700 times the market cap of the index's 75th percentile stock. That's the highest multiplier seen in about 100 years, a sign the benchmark index is highly concentrated.

Higher market concentrations have typically led to poorer returns for the S&P 500 over the next 10 years, barring recessionary periods.

3. The S&P 500 is seeing relative underperformance

Total returns for the S&P 500 since the start of the year have fallen behind several other assets, indexes, and individual sectors, including the Russell 1000, bitcoin, and gold.

Meanwhile, the total return of the S&P 500 has trailed behind the SPW, an equal-weight index of large-cap shares, and the S&P 400, an index of mid-cap stocks, for years.

"Investors should consider allocating to other indices where we view the current landscape as favorable for strong forward performance," strategists said, highlighting in particular the equal-weight S&P 500 and the mid-cap S&P 400 index.

"Long-term performance of these alternatives reflects the fact that the strength of the US economy and the earnings and innovative capacity of US corporates can be captured outside of large-cap and capitalization-weighted indices."

The S&P 500 is up 23% year-to-date, and corporate earnings have been relatively strong so far this quarter. According to FactSet, 75% of the companies that have reported earnings have beat earnings estimates, on par with the 10-year average.

Goldman Sachs strategists said they're bullish on the S&P 500 over the short term, forecasting 8% growth in earnings per share by the end of 2024 and 11% EPS growth the following year.

The benchmark index is on track to hit 6,300 over the next 12 months, the strategists predicted, implying another 8% upside from current levels.