US stocks performed better than predicted over the past decade, with potential for continued success

From Morningstar: 2024-06-19 05:40:00

Ten years ago, three schools of thought predicted the future of American stocks. The mainstream believed in 10-12% gains per year. Most experts saw 7-8% returns due to high stock prices and slow GDP growth. Pessimists, guided by CAPE ratio, predicted stocks due for a downfall.

US equities surpassed expectations by returning better than forecasted. Despite high valuations and slow growth, stocks thrived. Real returns were analyzed to consider inflation’s impact on the victory margin. The outcome showed equities outperformed expectations.

Experts’ predictions were evaluated for inflation, dividends, EPS growth, and valuation. With grades ranging from A- to D, the forecast for dividends and EPS growth combined was close to the true figure. Looking forward, a 5% return is expected with a 3% inflation rate.

While economic disaster is a possibility, a similar figure of 5% return is predicted over the next decade. If price/earnings ratios remain constant, an 8% nominal return is forecasted. However, a decline in the ratio could lower the return to 6.9% or 5.7% in the next decade.

Despite uncertainties, US equities could maintain a strong investment position for investors worldwide. The possibility of repeating past successes exists, but caution is advised. The future of US equities remains promising as a cornerstone investment option globally.



Read more at Morningstar: US Stocks Beat Predictions Over the Past Decade….