equities for so many years now that you might dismiss his latest comments as nothing more than the grumblings of a perma-bear. Earlier this week, Grantham insisted that the current stock market is “one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.” How long should you give these pessimists the benefit of the doubt?įor insight, I turn to Jeremy Grantham, the co-founder of the Boston-based investment firm GMO. Of course, many analysts for several years now have been issuing warnings about the overvalued stock market, and as a result many investors have stopped listening. In addition to showing what those indicators are now projecting, the chart also shows what they were projecting a year ago. Take a look at the accompanying chart, which focuses on a host of valuation indicators that historically have done the best job forecasting the stock market’s subsequent 10-year return.
Unfortunately, those fundamentals suggest that the stock market’s return between now and 2030 is even lower than it was a year ago. Nevertheless turned in a well-above-average return, producing a dividend-adjusted 18.4%.īut the stock market cannot forever remain disconnected from underlying fundamentals. You may recall that, one year ago, I reported a similar conclusion about the stock market’s longer-term prospects. That doesn’t mean it won’t do well this year, or over any other shorter-term period.
It would go against an overwhelming body of historical evidence for the stock market over the next decade were to perform at anywhere close to its long-term average. Not to bury my lead too much: The stock market’s prospects over the next decade are dismal. Reducing your equity exposure would be in order not just if another Depression or Financial Crisis were imminent, but even if the next decade is simply an overall flat market accompanied by a stagflating economy, such as in the 1970s. But you would want to do just the opposite if the stock market is entering into a dismal decade.
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