This is a research done by Bill Hester at Hussman Fund. Can the process of forecasting long-term stock market returns be simplified to include just one step – calculating the prior decade's return?
"Following the worst 10-year returns for the S&P 500, the average cyclically-adjusted P/E was just 12, GDP growth over the following decade average 10.5%, earnings growth averaged 8.63%, and the S&P 500 return over the following decade averaged 11.33. Presently, the cyclically adjusted P/E is above 21, while the prospects for earnings growth are depressed, both based on potential GDP and on the typical aftermath of a credit crisis. It is worth remembering that investors in the Japanese stock market have had rolling negative 10-year returns since 1997."
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"Following the worst 10-year returns for the S&P 500, the average cyclically-adjusted P/E was just 12, GDP growth over the following decade average 10.5%, earnings growth averaged 8.63%, and the S&P 500 return over the following decade averaged 11.33. Presently, the cyclically adjusted P/E is above 21, while the prospects for earnings growth are depressed, both based on potential GDP and on the typical aftermath of a credit crisis. It is worth remembering that investors in the Japanese stock market have had rolling negative 10-year returns since 1997."
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