Consensus: Groundhog Decade for Stocks - By Ed Easterling
There appears to be an underlying consensus that we are likely to repeat another decade of no or low returns from the stock market. That’s not just my opinion or outlook, it’s collectively yours.
The stock market may not be predictable by the month or year, but its returns over a decade can be reasonably estimated based upon two key measures. This discussion pulls extensive excerpts from Probable Outcomes: Secular Stock Market Insights, the recently-released book about the plausible range of scenarios for the stock market and returns over this decade.
I’ll explore the implications of your outlook for those two key factors and the resulting probable outcomes for the stock market. Just as Bill Murray woke up to the same thing day after day in the movie “Groundhog Day,” it’s likely that your outlook foretells a groundhog decade for the stock market that will repeat its near-breakeven returns from the past decade!
Before we journey into outlooks and outcomes, let’s explore the principles behind the approach to this analysis and let’s put the two factors into perspective.
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Book: Probable Outcomes
- Hussman Weekly Market Comment: Short Horizon, Long Horizon
Over history, and including the past decade, properly normalized valuations have remained a powerful guidepost for full-cycle and long-term returns, particularly on the horizon of 7-10 years. On that front, the current price/revenue multiple of the S&P...
- Vanguard: Forecasting Stock Returns: What Signals Matter, And What Do They Say Now?
Found via The Idea Farm. Executive summary. Some say the long-run outlook for US stocks is poor (even ‘dead’) given the backdrop of muted economic growth, already-high profit margins, elevated government debt levels, and low interest rates. Others...
- Hussman Funds Semi-annual Report
As of February 2012, the S&P 500 is again at a multiple of over 22 times cyclically-adjusted earnings. Regardless of economic prospects, this is a strong headwind. As of February 2012, we estimate that the S&P 500 is likely to achieve an average...
- John Mauldin's Outside The Box: Converging On The Horizon - By Ed Easterling
The end is near! Stock market history and earnings cycle history are converging. As a result, the market is likely to be down for the year 2011 or 2012. If not, then it will have been different this time. Crestmont’s research focuses primarily on long-term...
- John Mauldin's Outside The Box: Game Changer - By Ed Easterling
Investors are confronting the reality of the current secular bear market. It is both the consequence of the previous secular bull market and the precursor to the next secular bull. The duration of the current secular bear period is uncertain. Should inflation...