This morning I updated my 12-Year Annualized Returns Matrix (table below). The projected returns are tied with the prior worst.
Specifically, the projected range of returns over the next twelve years is a 6.1% annualized loss to a 2.8% annualized gain for the U.S. stock market (S&P 500).
The “middle-ground” expectation is a 1.4% annualized loss. Meanwhile, the 3-year treasury yield is about 4%.
The middle-ground expectation arises if S&P 500 sales growth were to match it’s long-term average of about 4%, P/E ratio ends around it’s long-term average of 17x and profit margins end up around its long-term average of 8%.
The last time projected returns looked this poor was at the end of 2021 when the 3-year treasury yield was at just 1%.
So, certainly, the projected return gap between U.S. stocks and safe 3-year treasury bills is even larger today by a significant margin, and the worst it’s ever been in modern history.
Dr. Hussman’s Nonfinancial Market Cap / Gross Value added has about a 90% correlation to forward 12-year returns, meaning it is one of the most reliable valuation metrics available to us.
That, too, is tied with or exceeding prior extremes and currently indicates a 6.0% annualized loss for the S&P 500 over the next twelve years (see below).
Chart below was pulled from Dr. Hussman’s recent commentary “Asking A Better Question”
Finally, the chart below shows the S&P 500 prices / sales ratio, which is another reliable metric with a very high correlation to forward 12-year returns…far more reliable than P/E ratios or other commonly-used metrics.
The current Price-to-Sales ratio is over 3x. For context, the long-term average ratio is 1.75 and median is 1.56 per https://www.multpl.com/s-p-500-price-to-sales
Disclosures:
Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.
Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here.
This is not investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.
Views provided here are current only as of the moment of posting and are subject to change at any time without notification.
