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

The S&P 500’s huge gains over the past two years won’t be duplicated some analysts say, as a series of economic challenges piles up.

Market 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 idea:

• Ed Yardeni, a veteran Wall Street analyst and the president of Yardeni Research, sees a risk from either party sweeping Congress and the presidency: “I think the stock market will do best if we basically vote for gridlock.”
• But Larry Fink, the C.E.O. of BlackRock, the world’s largest money manager, thinks that politics will have only a limited effect. “I’m tired of hearing this is the biggest election in your lifetime. The reality is over time, it doesn’t matter.”

The latest political news weighing on investors: Here’s a look at Harris’s top economic advisers, and who might be elevated to her cabinet if she wins in November; more than 15 million Americans have already voted; and the Republicans have greatly narrowed the Democrats early-voting advantage.

HERE’S WHAT’S HAPPENING

Rupert Murdoch’s News Corp publications sue an A.I. start-up for copyright infringement. The New York Post and Dow Jones, the parent company of The Wall Street Journal, accused Perplexity of copying their published works and “freeriding on the valuable content the publishers produce.” It’s the latest suit by media companies — The New York Times has sued OpenAI and Microsoft — that say A.I. businesses are sponging up copyrighted content to train their models without permission or appropriate compensation.

Tim Cook is said to have played a big role in shaking up Nike. Cook, Apple’s C.E.O. and a Nike board member, helped persuade Elliott Hill to come out of retirement to replace John Donahoe as C.E.O. of the struggling sportswear giant, Bloomberg reports. Over the past 19 years, Cook has become one of Nike’s most trusted directors, and has had a big say in some of its most important product and staffing moves.

A gigantic lithium discovery in Arkansas could be a boom for the green transition. Geologists announced on Monday that an underground reservoir in the state could contain as much as 19 million tons of lithium, a key material for electric vehicle batteries. The cache would more than meet global demand, and is potentially huge news for Exxon Mobil, one of the companies investing in lithium development in the region.

The state of the race to lead the House of Mouse

The news that Disney plans to take its time in naming a successor to Bob Iger — the entertainment giant has given itself until early 2026 to name a C.E.O. — may seem a little worrisome to company watchers used to bad news about the topic.

But the elevation of James Gorman, who ran a well-regarded process to find his successor as Morgan Stanley’s C.E.O., to chair suggests that Disney is seriously focused on the matter after struggling for years to find an acceptable replacement for Iger.

What does the news say about the state of the succession process? Possibly that it’s not going well. There are four internal candidates being considered: Dana Walden, the company’s top TV executive; Josh D’Amaro, its theme parks chief; Alan Bergman, its movies leader; and Jimmy Pitaro, the chair of ESPN.

Taking longer to choose a leader suggests that the candidates have all failed to convince the board that they are the right choice, or that they need more time to gain the necessary experience to oversee the media giant, according to Puck’s Matt Belloni.

Could that mean that the House of Mouse will look outside for its next chief? The company said such candidates were being “reviewed.”

The stakes are high. A lack of a succession plan was one of the major gripes in Nelson Peltz’s unsuccessful campaign to win seats on Disney’s board this spring. Remember that Iger pushed his retirement back four times before handing the reins to Bob Chapek in 2020, only to come back to replace his handpicked successor. And, according to a CNBC report from last year, the board had initially hoped to find a new leader by early 2025.

Meanwhile, Disney has been busy trying to engineer a comeback at the box office, while shoring up newfound weaknesses in its theme parks division.

Naming Gorman as chair could help shore up the process. He will assume the role in January, taking over for Mark Parker, who is expected to refocus on the turnaround at Nike as the sportswear giant’s executive chair.

Gorman had already been tasked with overseeing the succession process, drawing on his experience running one of the smoothest handovers on Wall Street in years. Giving him additional power could help him steer the board as it deliberates the matter.

HSBC’s big overhaul

HSBC announced its biggest restructuring in a decade this morning, splitting itself into four divisions, combining some of its commercial and investment banking operations and reshuffling management.

The changes come as Europe’s largest lender looks to cut costs and navigate a diplomatic minefield between China and the West.

Here are some of the biggest changes:

• The bank will make its British and Hong Kong banking units into two stand-alone entities.
• Commercial banking outside Britain and Hong Kong, and the markets and investment banking business will be part of a new commercial and corporate and institutional banking unit. An international wealth and premier banking division will group the private banking, asset management and insurance businesses.

• Pam Kaur, the chief risk and compliance officer, will become the bank’s first female C.F.O.

With rates under pressure, banks are scrambling to cut costs. HSBC reported better-than-expected second quarter results, but some analysts worry that the lender is exposed to the big rate cuts by the Fed and others.

HSBC is also at the front line of trade tensions between the West and China. The bank is listed in London but makes most of its money in Asia, and was caught in the crossfire during the pro-democracy protests in Hong Kong in 2019.

Ping An, a Chinese insurer and one of HSBC’s biggest shareholders, agitated for the bank to separate its Asia operations. Investors rejected the plan last year.

Investors shrugged off the latest changes. HSBC’s shares are up almost 10 percent over the past year but barely moved this morning. That’s partly because details weren’t revealed on how many roles would go and how much money would be saved and some analysts want to know what other parts of the group could be cut next.

The next challenge for the W.N.B.A.

The W.N.B.A just finished perhaps its most prominent season yet, bolstered by the star power of Caitlin Clark. Now players are seeking a new contract that will let them better cash in on the league’s soaring growth.

The question is: How much will they be able to extract from a business that is only now starting to see major success, with a year to negotiate until there’s a potential lockout?

The W.N.B.A. has exploded in popularity since the last collective bargaining agreement, or C.B.A., which was signed ahead of the 2020 season. W.N.B.A. said it had its highest total attendance in 22 years, up 48 percent from last season.

And this year, the league signed an 11-year media deal worth about $2.2 billion, about six times as much as its previous deal.

But is W.N.B.A.’s growth sustainable? The league has long lost money — a trend that is likely to continue this year — and it’s unclear whether Clark’s surging popularity will permanently extend to the league more broadly.

There’s one sign that it might: A record number of viewers tuned into the New York Liberty’s championship win against the Minnesota Lynx, a game in which Clark did not play.

A key negotiating point will be over players’ share of league revenue. Players split 9.3 percent of the league’s revenue. (By contrast, N.B.A. players get about half of their league’s topline.) But unlike many other leagues, the W.N.B.A. has multiple equity holders: the N.B.A., which owns about 42 percent; W.N.B.A. team owners, who collectively hold 42 percent; and private equity, which controls nearly 16 percent. That makes splitting the cash much more complicated.

Still, Clara Wu Tsai, who owns the Liberty with her husband, the tech mogul Joe Tsai, told DealBook that she thought players would get a bigger share of revenue in the end.

“I can’t talk about the C.B.A. publicly, but I think there’s so much pressure — and there’s also a great disparity right now among the percentage of revenue shared between the W.N.B.A., and what it is versus the N.B.A.,” she said. “I’m sure there will be something in between.”

THE SPEED READ

Deals

• JCP Investment Management, an activist investor, is reportedly pushing the Cheesecake Factory to consider selling off its three smaller restaurant brands. (WSJ)
• A group including Neuberger Berman and EQT has invested in Nord Anglia, an operator of international schools, at a valuation of $14.5 billion, including debt. (Bloomberg)
• Cooper Hefner, a son of Hugh Hefner, has bid $100 million to buy back the Playboy brand. (WSJ)

Elections, politics and policy

• Two Republican lawmakers accused Lina Khan, the F.T.C. chair, of potentially violating a ban on partisan political activity by federal employees by appearing with House Democrats before the election. (Bloomberg)
• “AI is already making it easier to spread election lies” (Axios)

Best of the rest

• The hedge fund mogul Marc Lasry sued a former employee, accusing her of trying to extort him for $50 million by threatening to spread false information about his firm. (Bloomberg)
• Olivia Nuzzi, the political writer who disclosed a personal relationship with Robert F. Kennedy Jr., has left New York Magazine. (NYT)
• Yes, it’s true: Chick-fil-A, the fast-food chain, will release its own entertainment app. (CNBC)

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