Is this wildly overvalued stock market doomed? Yes, but maybe not yet

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Subscribe to enjoy similar stories. Here are two particularly scary forecasts for investors: Goldman Sachs thinks the S&P 500 will make just 3% a year over the next 10 years, as Big Tech dominance eventually falters. Bank of America expects 0%-1% a year for a decade, a catastrophic investment prospect.

Their conclusion: Buy stocks anyway, because the next year looks great. The underlying problem is simple to understand, and hard to do much about. Stocks are super expensive on just about every measure.

That historically has meant low returns in the long run. Hence the dire 10-year forecasts. But history also suggests no link at all between nosebleed valuations like we have today and returns over the next year.

Expensive stocks can always get more expensive, and often do. The S&P 500 and Nasdaq are at record highs, and U.S. stocks are really expensive.

Six of the Magnificent Seven—Apple, Amazon.com, Meta Platforms, Microsoft, Nvidia and Tesla—are more expensive still, though Alphabet lags behind a little. The justifications the bulls trot out become less convincing the more stocks rise. Three are popular: AI, rising earnings and American exceptionalism.

Artificial intelligencehas supercharged the performance of the biggest stocks as the companies plow vast sums into data centers and specialized microchips. JPMorgan estimates that capital spending and research by just the Magnificent Seven will be $500 billion in the next year, with a total corporate AI spend of more than $1 trillion in the U.S., bigger than the defense budget. Investors anticipate fat returns from this capital.

History begs to differ. In the past, stocks of companies with higher capital spending lagged badly behind those that spent less. This time there is