Return Expectations for the Stock Market in the Decade of the 2020s

Sep 23, 2020 / By Ronald J. Surz
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Chart Talk: How will the market perform in the next 10 years? This analysis suggests reining in expectations.

I have in the past forecast stock market returns using a formula that is in fact a tautology, which Webster defines as a statement that is true by virtue of its logical form alone. Here is the formula:

Predicting future returns = Dividend yield + (1 + Earnings growth) x (1 + P/E expansion/contraction) - 1

My challenge in the past has been estimating “P/E expansion/contraction.” I’ve made the mistake of forecasting contraction reductions in the price/earning ratio. But recent research by Crestmont Research provides justification for forecasting a range of P/Es in this decade.

Likely P/E ranges

In “Macro View: A Permanent Shift in Valuations?,” Lance Roberts reports that Crestmont Research has found that P/E ranges are dictated by economic growth as follows:

Economic growth P/E ratio
Normal 7 to 25
Slow (below 2%) 5 to 17

As shown in the following graph, economic growth has been slow, and we are currently in a Covid-induced recession, so a slow growth P/E range is to be expected.

Figure 1: Slow Growth

Source: U.S. Bureau of Economic Analysis
Seasonally adjusted at annual rates

Return forecast for U.S. stocks in the current decade

The following tables show the range of future returns for the next 12 months and the decade ahead.

Table 1: Return Forecast for Next 12 Months

Source: Target Date Solutions

Table 2: Return Forecast for Next Decade

Source: Target Date Solutions

P/Es are currently 35, more than twice the historical average of 16. If they remain at 35, the U.S. stock market will earn 8% per year in this decade. I discuss what it would take to maintain P/Es at this level in the next section.

If P/Es contract to within the range identified by Crestmont, the average return in the decade will range between a loss of 1% per year and 7% per year. If the contraction happens quickly, in the next 12 months, the 12-month loss will range between 53% and 69%, in line with forecasters who see a correction worse than 2008 on the horizon.

As shown in Figure 2, the decade of the 2020s is forecast to be like that of the 1930s and 2000s—not the worst, but among the worst.

Figure 2: S&P 500 Returns by Decade

Source: Target Date Solutions and Standard & Poor’s

What could salvage the 2020s?

In my view, the U.S. stock market is currently in a bubble, defined as a situation where prices exceed value. In order for the bubble to continue, the following inflators would need to continue for a decade:

  1. Our 92 million millennials will need to keep buying stocks. This group was about 23 years old when the recovery in the 2010s decade began, so they expect stock markets to go up year after year—buying the dips is smart. And they are aggressively trading through services like Robinhood, and they like Robo advisors who are unlikely to bail.
  2. So-called FAANG stocks will need to remain the darlings of the stock market with their mega capitalizations. FAANG stocks are Facebook, Amazon, Apple, Netflix and Google. Apple recently reached a milestone of $2 trillion in market capitalization, which is the size of the entire Canadian stock market, the sixth largest in the world,
  3. Foreigners will need to continue investing in the U.S. stock market like never before.
  4. The Federal Reserve must continue to inflate U.S. stock and bond markets with new money. Prior to Covid, the Fed had injected $5 trillion in quantitative easing to buoy up the stock and bond markets. Now they have dropped another $3 trillion in Covid relief and are likely to dump at least another $2 trillion. Be aware that inflated security prices are a money illusion.
  5. Investors need to continue to believe that the pandemic will end quickly, and the economy will recover, and maybe even be better.
  6. The upcoming election results will need to be “good” for investors, whatever that means.
  7. The 78 million baby boomers will have to “stay the course” which generally means 60/40 stocks/bonds. I strongly recommend against this for individual investors.


At times like these the following words of wisdom help clear our thinking. I hope you find them helpful.

Words of Wisdom

Source: Target Date Solutions

Ron Surz is co-founder and Chief Investment Officer for GlidePath Wealth Management, an innovative money management firm that uses a patented process to deliver institutional-quality investment services to individual investors through its network of registered investment advisors. He can be reached at or (949)488-8339.


We discussed these forecasts and more yesterday on the Baby Boomer Investing Show. for the "rest of the story" please watch

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