S&P 500 will return just 3% a year for the next decade, top strategist warns |
S&P 500 will return just 3% a year for the next decade, top strategist warns
Rob Arnott warns that shareholders in U.S. big caps will make one-fifth the returns over the next 10 years they pocketed since 2016, and those meager gains will barely edge the CPI. You may want to take a cold shower, or a shot of tequila, before you hear the convincing logic behind his dour prediction.
Arnott is the founder and chairman of Research Affiliates, a firm that oversees strategies for nearly $200 billion index funds and ETFs for the likes of Charles Schwab and Invesco. He served as editor-in-chief of the Financial Analysts Journal in the early 2000s, and today co-manages the Pimco All Asset and All Asset All Authority funds. He’s also the father of “fundamental indexing,” the practice of weighting stocks in by their size in the economy rather than chasing expensive “winners” by ranking according to market cap. At RA, Arnott’s bred a think tank in its own right featuring sundry PhDs who apply advanced statistical research to forging benchmark-beating vehicles.
So I check frequently with Arnott to get his take on what those buying into the S&P 500, or baskets of big cap U.S. stocks, are likely to reap in the years ahead. It’s an especially good time to get a sober reading. The S&P’s dropped 4.4% from its record close in January, and the Iran war and jump in oil prices and Treasury yields following the attack are raising a new cloud of pessimism.
An advantage to consulting the sage: Though his predictions are based on a sophisticated analysis of past trends, the future math is basic. In our conversation over Zoom, Arnott stressed that returns have three sources, dividends, growth in earnings (that lift payouts in tandem), and expansion in valuations or PEs. The last ten years, he avows were something of a seldom-seen, golden age for this trio, but especially profits and multiples. “Overall, U.S. large caps [as reflected in the S&P 500] produced overall gains of 15.5% a year, an extraordinary number,” says Arnott.
The rub: The fantastic profit and PE performance over the........