by David Merkel, Aleph Blog
This is my quarterly update on how much the market is likely to return over the next 10 years. Ā At the end of the last quarter, that figure was around 6.54%/year. Ā For comparison purposes, that is at the 77th percentile of outcomes ā high, but not nosebleed high, which to me, is when the market is priced toĀ return 3% or less. Ā Thatās when you run.
Adding in quarter to date movements, the current value should be near 6.3%/year (79th percentile).
With all of the hoopla over how high the market is, why is this measure not screaming run? Ā This is because average investors, retail and institutional, are not as heavily invested in the equity markets as is typical toward the end of bull markets. Ā There are many articles calling for caution ā I have issued a few as well.
From an asset-liability management standpoint, bull markets get particularly precarious when caution is thrown to the wind, and people genuinely believe that there is no alternative to stocks ā that you are missing out on āfree moneyā if you are not invested in stocks.
We arenāt there now. Ā So, much as I am not crazy about the present state of the credit cycle (debts rising, income falling), there is still the reasonable possibility of more gains in the stock markets.
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For more on this series, see the first four articles in this search, which describe the model, and its past estimates.
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