Many investors are still bewildered that the shock of 2020’s economy gave rise to the awe that is this year’s stock market. The puzzle gets worse: Stocks have done better than their norm of the past century even if you invested at the high in 2007 and held through both the worst financial crisis and worst pandemic in 100 years. What on Earth is going on?
The answer should give pause to investors who plan to hold for the long run. Stocks have won big, not primarily because earnings went up but because the cost of money went down almost to zero. A repeat in the next decade is almost inconceivable, which means future returns are likely to be pedestrian, at best.
To put some numbers on it, an investor who bought the S&P 500 in October 2007, stayed calm as Lehman Brothers went bust, and ignored the repeated panics and the pandemic made an annualized 7.3% above inflation, including dividends. That is far better than the 6.5% annualized real return on U.S. stocks from 1900 to the start of this year calculated by academics Elroy Dimson, Paul Marsh and Mike Staunton for Credit Suisse . It is on a par with the postwar returns of 7.
This year is a fine example of why: In 2020, falling earnings coincided with much higher valuations of future earnings, as lower interest rates and bond yields made stocks look more attractive. Unpack that thought and the implication is that we are paying more for the same future stream of income. That is, stocks offer pretty much the same prospective profits and dividends that they did before, but at a higher price. Sure, some biotechnology and videoconferencing stocks have had their growth accelerated by the pandemic, but shareholders of airlines, shopping-mall owners and travel companies will be using a big chunk of future profits to pay for the debt needed to survive 2020.
You always buy when everyone is scared & hoarding their cash over literally nothing. I learned this when people were screaming about how the stock market was going to crash and society was going to fall right after Trump became president in 2016.
Algorithms and time 😂💰
Wrong. Trump’s pressure. Stop shifting focus.
dimacgarcia É a boca do jacaré 🐊
the stock market highs of the richy rich during the lows of average Americans struggling with COVID19, foreclosure, homelessness, hunger, fear... Its gonna get ugly for you sick sadist Establishment sobs
jmackin2 FOR THE WIN. Great article, amigo!
Is evident . More money . Balckrock take all and Buy all . This continue 2021 2022 while FEd print more money. Write this
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