As the era of easy money during the pandemic comes to an end, the market will begin to reward stock pickers more amid a return to a “normal” cycle, Goldman Sachs said.

Meanwhile, rising inflation and interest rates will make the post-pandemic landscape less generous overall, and aggregate index returns will be lower, according to a Feb. 10 note.

“We are returning to a more ‘normal’ cycle where we expect investors to be rewarded for making sector and equity decisions related to potential growth relative to price,” wrote analysts led by Peter Oppenheimer, Goldman’s chief global equity strategist.

Recent years have seen a surge in passive investing as hedge funds and other active investors lagged the S&P 500’s growth. As a result, investors have poured money into ETFs that track the index.

Over the past two years, Goldman said, stocks have mostly moved in step, recovering from the March 2020 slump. Valuations have jumped to new highs, especially among growth-oriented tech stocks.

But that trend is coming to an end, analysts predict, saying “the ability to capture this growth in just one market, factor or specific sector has ended.”

Slower economic growth in the future will lead to more careful selection instead of relying on the broader market.

As global equity market capitalization has grown in proportion to global GDP, this could lead to lower returns over the long term, according to the bank.

In addition, rising interest rates will lower valuations and encourage a shift from growth stocks to value stocks.

As the Fed begins to implement a more hawkish monetary policy, the bank expects investors to see a decline in total returns and less dominance of technology stocks.