Poll: S&P: Will it be higher or lower...

… at year end?
.

  • 20% lower

  • 10-20% lower
  • ±10%
  • 10-20% higher
  • 20% higher

0 voters

The correct answer is “nobody knows”, but I didn’t see that as an option. Also, 6 months is way too short a time horizon for investing in the market. Zoom out to multiple years.

6 months is way too short a time horizon for investing in the market. Zoom out to multiple years.

As you note, the market could do anything in half a year. I have no idea.

It’s a more interesting question at (say) two to five years, when valuation has had a chance to at least get a vote in.
There’s a pretty reasonable chance of a negative real total return number.
My central guess for seven years out is inflation + 2.25%/year.
That assumes an ending valuation level similar to the average 1995-2022,
and also around the same trend earnings growth rate similar to what has been seen since then.
Both of those have been quite a lot above their respective longer term averages, so 2.25% could be seen as an optimistic expectation.

It’s certainly higher than the figures GMO comes up with using a similar methodology but a longer history to define expected normality.
I think they’re expecting something like 5%/year worse than my figure.

Jim

5 Likes

It really doesn’t matter, what the Index does in the short term. There is a great chance it could be lower because of further rate hikes, QT, Recession, etc or may be we are already in recession and could be getting out by then. Who knows?!

What truly matters is, look at the below table, of CAGR of SP500 earnings, this is GAAP earnings.


10 Years	6.30%
20 Years	8.47%
30 years	6.23%

This is what I expect to continue, you may have some multiple expansion, contraction, etc. As an Index investor, just invest regularly (preferably every month), and over time you are going to be doing fine.

of course, it is not sexy. It is lot more funny to equivoque and look very serious or spend your time doing real fun things in real world. :slight_smile:

Both of those have been quite a lot above their respective longer term averages, so 2.25% could be seen as an optimistic expectation.

It’s certainly higher than the figures GMO comes up with using a similar methodology but a longer history to define expected normality.

GMO is a permabear, lot of folks confuse value investing with permabear position. They come wearing CAPE’s (so often folks confuse them for heroes’). The below table shows that SP500 earnings growth, CAGR or compounded annual growth rate. So if someone is expecting returns similar to last 30 years, either they are predicting inflation around 4% for next 7 years, (Hello JPow, there are folks who doubt your resolve to break the inflation back, LOL) or they are expecting multiples to contract to single digit or just plain wrong. The good thing about being an internet pundit with 7 year outlook is no one is going to look back and hold you for your record.


10 Years	6.30%
20 Years	8.47%
30 years	6.23%