Stock Market Past Predicts Dismal Stock Market Future

A new calculator that employs regression analysis on historical stock return data going back to 1870 shows that the S&P stock index is likely to provide a real return of less than 3 percent over the next 20 years. "Investors

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A new calculator that employs regression analysis on historical stock-return data going back to 1870 shows that the S&P stock index is likely to provide a real return of less than 3 percent over the next 20 years. “Investors have been misled by reports on what the historical data says that ignore the effect of changes in stock valuation,” says Rob Bennett, co-author of the new calculator. “Today’s stock valuation level is not at all typical, and it is not realistic to expect stocks to generate typical returns again until stocks are again being sold at reasonable prices.”

The historical stock-return data shows the most-likely 30-year real return for purchases of the S&P index made today to be 5.3 percent (with a range of possibilities stretching from 3.4 percent to 7.4 percent). The outlook is considerably darker for the more immediate future, however. The calculator reports a most-likely 10-year return of 1.3 percent (with a range of possibilities stretching from a negative 4.7 percent to a positive 7.3 percent). For 20 years, the most likely return is 2.7 percent (with a range of possibilities stretching from a negative 1.3 percent to a positive 6.7 percent).

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