| Negative 4.6% a Year – the Likely Seven-Year Real Return on Stocks | | By Dr. Steve Sjuggerud | Monday, January 22, 2018
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| I gave a speech at the New York Stock Exchange last week... And attendees there were calling me "Mr. Melt Up."
I took it as a sign of respect...
I've been a big cheerleader for this bull market since its start in 2009. In 2015, I started using the term "Melt Up" to describe the biggest push higher in stocks. Now, everyone's using it.
So what I'm about to say might surprise you...
While I expect more gains over the short term (one to two years), my outlook for the long run (five to 10 years) is pretty darn glum.
The basic reason is simple:
In the short term, trends matter.
In the long term, valuations matter.
Let me explain...
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I have not talked a lot about valuations... mostly because valuations alone don't kill bull markets.
But the long-term outlook for this market – based on valuations – is terrible.
Legendary investor Jeremy Grantham agrees...
He recently published a paper called "Bracing Yourself for a Possible Near-Term Melt-Up." In it, he said a Melt Up or end-phase of a bubble is likely within the next six months to two years. And if that happens, he says, the odds of a subsequent big decline are "very, very high."
Meanwhile, his investment firm's forecast for large-cap U.S. stocks is a total return of NEGATIVE 4.6% a year over the next seven years. (That's not counting inflation.)
Now, Rob Arnott of Research Affiliates – another highly respected analyst and firm – has recently released a paper about valuations... with a similarly glum conclusion.
Arnott's research suggests a 10-year real return on stocks of just 0.4% a year.
That low real-return number is because we are starting from such high valuations today.
"No matter what adjustments we make, the U.S. market is expensive," Arnott says. "The CAPE (cyclically adjusted P/E) ratio is not a useful timing signal for market turning points, but is a powerful predictor of long-term market returns."
I agree with both of these guys.
Here's what I believe: In the short run, valuation is not a good timing indicator of the top.
I expect the Melt Up to continue higher, for potentially as long as two years.
Afterward, I expect stocks to perform terribly... We should see a multiyear period in which valuations revert to the mean.
In short, markets will go up (and UP!!!)... And then, they'll go down...
So don't get too enamored with stocks during the Melt Up. Know in the back of your mind that the other side – the "Melt Down" – could be ugly for a while...
Good investing,
Steve |
NEW HIGHS OF NOTE LAST WEEK Berkshire Hathaway (BRK-B)... Warren Buffett's holding company Mastercard (MA)... credit cards Visa (V)... credit cards PayPal (PYPL)... society goes "cashless" Cisco (CSCO)... "plumbing" of the Internet Apple (AAPL)... iPhones and iPads Activision Blizzard (ATVI)... video games Best Buy (BBY)... big-screen TVs, laptops, tablets Wal-Mart (WMT)... retail behemoth Dollar General (DG)... discount retailer 3M (MMM)... the everyday goods in your house Colgate-Palmolive (CL)... the everyday goods in your house Lennar (LEN)... homebuilder NVR (NVR)... "most capital-efficient homebuilder in America" Hyatt Hotels (H)... hotels Marriott (MAR)... hotels Wyndham Worldwide (WYN)... hotels and resorts Las Vegas Sands (LVS)... casinos and resorts Wynn Resorts (WYNN)... casinos and resorts Aramark (ARMK)... food and uniforms Ecolab (ECL)... sanitation Becton Dickinson (BDX)... needles and syringes LabCorp (LH)... medical testing Humana (HUM)... health insurance UnitedHealth (UNH)... health insurance Salesforce.com (CRM)... software for businesses International Paper (IP)... paper FedEx (FDX)... shipping United Parcel Service (UPS)... shipping
NEW LOWS OF NOTE LAST WEEK Sprint (S)... debt-laden telecom General Electric (GE)... appliance giant Kimco Realty (KIM)... shopping centers |
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| A 31% gain is possible in one country's stocks, starting now... While the long-term picture isn't pretty, the short-term opportunity in stocks remains bright. The Melt Up is going global... And Ben Morris believes one country's stocks could melt higher from here... Click here to get immediate access. |
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| | All Right, Mr. 'Melt Up'... So When Does It End? | | By Dr. Steve Sjuggerud | | Tuesday, January 16, 2018 |
| | Here in 2018, it seems, all the Wall Street experts are getting onboard with my "Melt Up" idea... |
| | This Notoriously Cyclical Sector Is Starting to Boom | | By Justin Brill | | Saturday, January 13, 2018 |
| | One "left for dead" asset class is quietly moving higher again... |
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