that expectations that stocks will be higher in the next 12 months rose from 39% to 41% since last month’s reading.Consumer sentiment numbers have recently highlighted how certain demographics are thriving while others aren’t, but with the market near all-time highs, it’s no surprise that those who own stocks are feeling good.”The chart below shows the annual change in consumer surveys of higher stock prices.
Given the popularization of the financial markets through trading apps like Robinhood combined with a rising tide of social media commentary, it is unsurprising that lower income brackets have joined the fray hoping toCapital gains from markets are primarily a function of market capitalization, nominal economic growth, plus dividend yield.
If economic growth reverses, the valuation reduction will be quite detrimental. Again, this has been the case at previous peaks when expectations exceeded economic realities. The 10-year forward returns are inverted on the right scale. Such suggests that future returns will revert toward zero over the next decade from current levels of household equity allocations by investors.
At the same time, corporations have engaged in massive share buyback programs, which have elevated prices and reported earnings per share by lowering the number of shares outstanding. Historically, when the market trades well above actual profits, there has always been a mean-reverting event to realign expectations with economic realities.
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