It was late fall, 1999. The peak of the infamous “Tech Bubble” loomed just a few months into the future. We had invited about a dozen local attorneys and accountants to our “Market Outlook Breakfast” to discuss and answer questions about the red-hot US stock market — which, at that point, was the center of everyone’s attention. Much to the consternation of several of my HM Payson colleagues who were hoping to make an optimistic impression on our guests, I stepped through a straightforward set of inputs and assumptions and concluded that it was possible, if not likely, the S&P 500 would provide a negative total return over the next 10 years. I recall well the audience met my forecast with bemused indifference — and why wouldn’t they? It was going to be different this time: rapidly-evolving technology and the growing impact of the Internet would transform our economy which could then grow forever, they opined. And besides, the argument continued, over all the 10-year holding periods going back to 1925 the stock market had provided a positive return more than 95% of the time. Well, it turned out my forecast was a tiny bit optimistic: our work predicted the market would return -0.5% annually, but it finished the decade down about -0.9% per year. Not a bad forecast!
So, what does an old market war story have to do with where we are today? To paraphrase Mark Twain, history seldom repeats itself, but it often rhymes. Indeed, in the rare instances the stock market produced a negative return over a 10-year holding period, it started from high levels of valuation — and today’s near-record US stock market valuations are what compel us to pen this new 10-year forecast now. To keep reading, download the printable PDF.
