The most profitable government fund and Wall Street banks have warned of a decline in stock returns

The New Zealand Superannuation Fund (NZ Super Fund), recognized as the world’s highest-performing sovereign wealth fund over the past 20 years, has forecast a decline in U.S. stock returns following several strong years. Meanwhile, strategists at leading Wall Street banks are listing various risks—from inflation to seasonal market weakness.

“The returns on U.S. stocks over the past couple of years have been nearly double the average annual return over the past 20 years. Therefore, we expect that at some point they will return to the average level,” said Jo Townsend, CEO of the NZ Super Fund. Her remarks were included in a press release issued by the fund on September 16 regarding the results of the fiscal year that ended in June.

In 2025, Global SWF—an organization specializing in central banks, sovereign wealth funds, and public pension funds—recognized the NZ Super Fund as the highest-performing sovereign wealth fund over the previous two decades, according to the Financial Times.

In May, the NZ Super Fund lowered its long-term forecast for its average annual return from 7.8% to 7.2%. Townsend attributed the revision to an expected decline in equity returns and the fact that, as part of its active portfolio management, the fund is now prepared to take on less risk.

According to the FT, the fund’s allocation to U.S. stocks was lower than that of the passive portfolio it uses as a benchmark. As a result, the NZ Super Fund did not fully benefit from the S&P 500 rally: from July 2025 through June 2026, the index rose by more than 20%. The fund’s return was 14.17% after expenses but before New Zealand taxes: this is 0.1 percentage points lower than the return of the passive benchmark portfolio, the fund reported.

Townsend acknowledged that concentrating investments can yield high returns in the short term. However, over the long term, “a more diversified portfolio is better aligned with our objectives,” she said. According to her, the fund’s performance over the past 20 years clearly confirms this: it generated 22 billion New Zealand dollars ($12.7 billion) more than a benchmark passive portfolio would have yielded.

Wall Street banks are discussing risks over a shorter time horizon. Specifically, Wells Fargo anticipates a 5–10% decline in stock prices this year and lowered its year-end target for the S&P 500 from 7,950 to 7,700 points. Bank of America, on the other hand, raised its forecast from 7,100 to 7,400 points. However, as of September 15, Wells Fargo’s target implied growth of only 1%, while BofA’s implied a 2% decline, according to Business Insider (BI).

“A pullback has been a long time coming, and we are entering a seasonally weak period,” BI quotes a September 14 note from BofA strategists. According to the bank’s observations, the S&P 500 typically experiences three declines of approximately 5% per calendar year, and so far in 2026, there has been only one.

Morgan Stanley fears an "unexpected inflation shock." According to the bank's assessment, if oil prices continue to rise and bond yields increase, a short-term correction in stock prices is possible, BI reports.

Wells Fargo believes that investors are holding too large a portion of their assets in stocks, and the recent spike in bond yields is creating additional pressure. “The cycle is entering its late stage, so there is reason to expect a decline in valuations,” its analysts warned (as quoted by BI).

At the same time, Wells Fargo expects the rally to resume after the pullback. Morgan Stanley also views a possible near-term decline in prices as the “final stage” of a correction that began several months ago, according to BI.

This article was AI-translated and verified by a human editor