When Vanguard offered up its capital markets outlook for 2026 and beyond late last year, it wasnʻt particularly bullish.
Over the next five to 10 years, Vanguard predicts U.S. equity annual returns of 4% to 5% with the muted outlook "nearly singlehandedly driven by our risk-return assessment of large-cap technology companies." In short, its major concerns are overvalued large tech stocks and "creative destruction from new entrants into the sector, which erodes aggregate profitability."
It does see better returns for value, small-caps, international, and emerging markets stocks as investors rotate away from U.S. large-caps.
So, if this projection plays out, what does that mean for the S&P 500 over the next five to 10 years? More specifically, what does it mean for the largest ETF in the world, the Vanguard S&P 500 ETF (VOO +0.85%)?
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Muted returns for large caps are expected over the next 10 years
While the outlook by Vanguard calls for muted returns, it is just one viewpoint -- although an extremely important and knowledgeable one.
However, other major players apparently agree. Goldman Sachs, back in late 2024, said the next 10 years would be a "dead decade" with 3% annual returns. Charles Schwab forecasts 5.9% annual returns for U.S. large caps over the next 10 years, with international and emerging markets outperforming.
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Key Data Points
Similarly, JPMorgan Chase calls for average annual returns of 6.7% for large caps over the next 10 years, with high valuations acting as a drag. It also sees international and emerging market stock outperformance.
These projected returns would be about half, or less than half, compared to the 12.9% average annual return for the S&P 500 over the past 10 years from Jan. 1, 2026, to Dec. 31, 2025. They would be more in line with the roughly 5% average annual return the S&P 500 saw from the 10-year period from Jan. 1, 2006, to Dec. 31, 2015.
Should you buy the Vanguard S&P 500 ETF right now?
On the one hand, an ETF that tracks the 500 largest companies trading in the U.S. should be a staple of any portfolio, whether it's the Vanguard S&P 500 ETF, the State Street SPDR S&P 500 ETF (SPY +0.84%), or the iShares Core S&P 500 ETF (IVW +1.42%).
On the other hand, investors may want to temper their expectations, as many of the leading investment houses see lower returns for U.S. large caps over the long term.
A good strategy would be to keep, or add if you donʻt have it, the Vanguard S&P 500 ETF, or one similar, to your portfolio. But it would also be smart to diversify, perhaps more so than in the past, with a leading value ETF, as well as international and emerging market ETFs.
