According to a recent Mark Hulbert article for MarketWatch, the "Stock market is doomed to rise only 3.5% per year over the next decade." I do not put much stock in long-term market prognostications, but I do believe in long-term fundamental analysis - and basic math, and Hulbert makes a compelling case.
Hulbert's analysis is straightforward. Stock prices are a function of both earnings and price/earnings ratios. Earnings growth is a function of sales growth and increasing profit margins. Unfortunately, profit margins are already stretched to the limit, which leaves sales growth as the only viable source of long-term earnings growth. Hulbert contends that sales growth will likely lag GDP growth, which would be hard-pressed to exceed 3.5% per year in the mature US economy over the next 10 years. That leaves expanding price/earnings ratios, which are already very high.
When you put it all together, the return outlook for stocks over the next decade in the US is weak. If you consider that profit margins and price/earnings ratios might contract to more normal levels, and throw in one or two long-overdue recessions, the long-term return prospects for US stocks could look downright scary.
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