It’s mostly been a great start to 2019 for stocks. The S&P 500 rose 12% in less than 3 months. What should we expect for the remainder of this year and subsequent years? We stick to our belief that predicting short term fluctuations is futile, and we’ll highlight some recent thoughts shared by Vanguard’s excellent investment strategy team.
Below is a short summary of the team’s forecast for annual returns over the next decade. After that, we provide a brief explanation of some of the analysis behind the US stock forecast.
- 4 to 6% for US stocks.
- 7 to 9% for non-U.S. stocks.
- 2 to 4% for global bonds.
The cyclically adjusted PE ratio (CAPE) is one measure of how overvalued or undervalued stocks are.
It provides an imperfect clue about future stock growth (undervalued stocks often grow faster than overvalued stocks).
The team at Vanguard attempts to get a more meaningful picture by comparing the S&P 500 CAPE to a proprietary “fair-valued CAPE range,” rather than looking at the CAPE alone.
The current CAPE is significantly high in and of itself, but only slightly high compared to their fair-value range.
They interpret this to mean that stocks may be a little overpriced, but not in a bubble (and a very low risk of recession).
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