Groundbreaking research published in the International Review of Economics & Finance shows a simple metric can predict stock market returns based on S&P 500 earnings yield and TIPS yield difference. The study by Austin Murphy, Zeina N. Alsalman, and Ioannis Souropanis analyzed economic factors and market dynamics from 1997 to 2022.

Key findings reveal the power of the earnings yield-TIPS gap in predicting stock market returns over short and long-term horizons. Inflation plays a dual role, with current inflation negatively affecting stock performance while historical inflation boosts future returns. Economic slack, monetary policy, and money supply growth also impact market deviations.

Read more at Morningstar: This Simple Metric Could Predict Future US Stock Market Returns