Opinion: This simple math means stock-market returns will be anemic over the next decade

T

trader99

Thoughts on this article projections? This an annualized return for the S&P 500 over the next decade. Doesn't mean it will return 2.6% every year. It could be down -20% then up 30% then down -15% etc and average out to an annualized percentage of 2.6%.

Or do you guys think the non-stop money printing will get us double digit return til inifnity... :)

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"That means the CBO’s projection translates into a projected inflation-adjusted total return for the S&P 500 of 2.6% annualized: The sum of 0.7% from earnings growth (one percentage point less than the CBO’s GDP projection) and the current dividend yield of 1.9%. That’s less than a third the historical rate and only a sixth of the last decade’s annualized growth."

https://www.marketwatch.com/story/t...xt-decade-2020-02-18?siteid=yhoof2&yptr=yahoo
 
Multiple expansion is a one-time boost; you can only go from 7% earnings yields to 2% once. After that you're stuck with underlying earnings growth, which in the long run matches nominal GDP.
 
Seems about right. What sucks is that we're also forced into ZIRP so you can't retreat into bonds for a better return anyway.

We've been on a rocket ship of zero value. It will be nice to see the market fall back to where it belongs to be honest.
 
Specterx said:
Multiple expansion is a one-time boost; you can only go from 7% earnings yields to 2% once. After that you're stuck with underlying earnings growth, which in the long run matches nominal GDP.
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But those multinational companies who derive a substantial amount of their revenues from emerging and high flying economies will grow their revenue and earning more than the US GDP growth. I think that is why big caps are outperforming small caps in the past decade. Most small caps are US centric.
 
ironchef said:
But those multinational companies who derive a substantial amount of their revenues from emerging and high flying economies will grow their revenue and earning more than the US GDP growth. I think that is why big caps are outperforming small caps in the past decade. Most small caps are US centric.
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That's true to an extent but the overall effect is much more limited than you might think. Foreign sales as a percent of total sales were 41% in 2003, 48% in 2014 and 43% in 2018. This fraction sure isn't going to increase meaningfully in the 2020s as trade barriers are going up, global growth is structurally slowing for demographic reasons, and most of the remaining "emerging" economies in places like Africa are going to forever be "emerging".

Add that politics is obviously going in a direction of greater socialism, redistribution etc. which represents a secular shift and will probably weigh on corporate profits for decades to come, creating a countervailing drag on any potential tailwind from greater EM growth.
 
trader99 said:
Thoughts on this article projections? This an annualized return for the S&P 500 over the next decade. Doesn't mean it will return 2.6% every year. It could be down -20% then up 30% then down -15% etc and average out to an annualized percentage of 2.6%.

....... :)

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"That means the CBO’s projection translates into a projected inflation-adjusted total return for the S&P 500 of 2.6% annualized: The sum of 0.7% from earnings growth (one percentage point less than the CBO’s GDP projection) and the current dividend yield of 1.9%. That’s less than a third the historical rate and only a sixth of the last decade’s annualized growth."

https://www.marketwatch.com/story/t...xt-decade-2020-02-18?siteid=yhoof2&yptr=yahoo
More...
%%
He has some good points;
about bonds doing even worse. [LOL] IBD founder is much more skilled @ market + market profits/NYSE seat/funds than than that MW. Thanks for the anti bond tip-he is right on that, mostly.
Average longest term SPY/S&P500 is about 12%;QQQ tends to do even better. JAN forecaster, Stock Traders Almanac, 88%, sounds much better than that writer.
DAL sector tends to do much worse than his opinion also;its not random @ all.
 
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