The Future Isn’t What It Used to Be

Abstract

The risk of the US stock market posting below-average returns in the coming years is high, yet not widely appreciated. Oyster describes three data points (dividends, earnings growth, and P/E ratio changes) that combine to form a stock market’s total return and considers how they might contribute to performance in the future. He references a study that shows nearly all commonly viewed equity-market-predicting metrics offer little if any predictive power, save one. Although the Shiller cyclically adjusted price/earnings multiple (CAPE) has provided less than perfect foresight, it has potential as a predictive tool. CAPE readings are suggesting future returns could be lower than historical averages. Oyster points out that the absence of the declining interest rate environment that supported stock market ascension since 1981 may inhibit returns as well.